Topic: General Legal
Time Investment: 7 Minutes
Suggested Product: All-in-One Contract Bundles
Over the last few years, businesses have taken their awareness of the weight potential clients and customers place on reviews to codify contractually that if a customer publishes a negative review then they are subject to a penalty- anywhere on a spectrum from a small “fee,” to legal action and punitive damages.
Stories like a Petsitter suing for 1 million dollars over a negative review, a small hotel in Hudson, NY including a contract provision that fined the bride and groom $500 per negative review written by anyone associated with the wedding party, a wedding photographer suing a bride for $350,000 for a negative review, a dentist claiming a patient owed $111,000 in “fines” after the patient alleged on Yelp and DoctorBase that she overcharged him and failed to submit his paperwork to the insurance company, have brought the issue of non-disparagement clauses to the attention of the wider public.
Other businesses have responded with online reputation improvement services where businesses pay to improve their online reputation, along with business development services and attorneys suggesting “non-disparagement” clauses be included in website policies, customer contracts, and the “fine print” of user agreements.
On 15th December, President Obama signed H.R. 5111, “Consumer Review Fairness Act of 2016” into law. The legislation, which passed both the House and the Senate at the start of December, “makes certain clauses of a form contract void if it prohibits, or restricts, an individual from engaging in a review of a seller’s goods, services, or conduct.”
The background to the legislation is the desire to protect the rights of the consumer from businesses seeking to impose stipulations or clauses in contracts limiting reviews posted to websites. Referred to as “gag-clauses” and “non-disparagement clauses,” these types of clauses have been designed to discourage customers from posting honest reviews that criticize the company – and imposing a financial penalty if they do.
While some states, including California (Cal. Civ. Code §1670.8), Maryland, and Utah had already developed some case law or state legislation addressing non-disparagement clauses, there was not a uniform approach across the nation. For example, a short negative online review by a customer that failed to receive their order resulted in a $3,500 “Non-Disparagement Fee” levied by KlearGear.com culminated in an order by Utah court for KlearGear.com to pay damages of $306,750 to the couple who wrote that review.
Regardless of the state in which the transaction occurred, as a consequence of the “Consumer Review Fairness Act,” the consumer now has the ability to take legal action against companies who attempt to pressure customers or potential customers into not offering negative reviews. In the past, companies could include a penalty clause in a contract requiring a payment should a negative review offered by that customer be left on a specific website (or “published” in general).
Sen. John Thune of South Dakota, one of the sponsors of the Act voted upon in the Senate, praised his colleagues for passing this legislation unanimously, saying “By ending gag clauses, this legislation supports consumer rights and the integrity of critical feedback about products and services sold online.” The idea is to maintain one of the fundamental principles of a capitalist market economy – that supply and demand are governed by market forces and that any unfair limitation to these forces is not in the best interest of the market.
The support for this legislation also came from the Better Business Bureau, as well as review aggregation Businesses (like Yelp, Angie’s List, TripAdvisor), who consider non-disparagement clauses to be contrary to its mission of “an ethical marketplace where buyers and sellers can trust each other.” You cannot be an accredited business with the Better Business Bureau and use a non-disparagement clause.
Laurent Crenshaw, director of public policy at Yelp, told NBC News: “At the end of the day, fair and honest commentary — whether it’s positive or negative — serves to inform both consumers and, if taken properly by the business owner, can actually help them to improve their business practices, as well.”
“TripAdvisor strongly believes in the right to write,” says Brad Young, Assistant General Counsel for TripAdvisor: “Some companies, rather than trying to provide great service, have instead tried to silence their critics in an effort to improve their online reputations and that’s something that goes against everything we stand for.”
The Consumer Review Fairness Act doesn’t just cover reviews published in online media, rather it refers to “review” in general. It also empowers the Federal Trade Commission (FTC) and the States to be able to take legal action in addition to individual customers. It remains to be seen how involved the FTC or the States will be in curbing businesses unfairly seeking to limit negative reviews of their products or services by utilizing non-disparagement contractual clauses.
What does this mean for your Business?
You may need to revise your contracts if they were drafted with a non-disparagement clause. Review the contract you have your clients or customers sign and look for terms like “a no-review policy,” “non-disparagement” and “agree not to disparage” clauses — basically anything that implies that communicating something negative about the company comes with a punishment. If unsure, have your attorney review your contractual documents.
Consider in advance your policy for handling negative reviews! Can you turn a negative into a positive through great customer service? Can you use the opportunity to demonstrate a positive attitude? Defensiveness is not always the best policy for responding to negative feedback.
So what about negative reviews that aren’t true?
So what if you have a client (or a competitor) who seeks to disseminate a negative review that contains lies, or is designed to damage your business? The first amendment – the one about free speech – protects your right of free expression, however, it does not shield the speaker from repercussions should that speech constitute slander, defamation, or libel.
This legislation does not do anything to prevent you from pursuing a legal remedy. If the bad review is not factual, then the business entity can still sue for libel. However, if it’s a bad review because you provided a faulty good, or service that was not as you promised, then you cannot contractually require a customer to refrain from offering a negative review (or at least you cannot claim damages or some form of penalty applies if they do).