I recently wrote about the enforceability of online arbitration agreements. Now there’s a new law on the books that may affect many online – and real-world – contracts in California. On September 9, 2014, California Governor Jerry Brown signed a law banning non-disparagement clauses in consumer contracts. So what does this have to do with Yelp? And can a business prevent bad reviews?
The new California Civil Code section reads:
1670.8. (a) (1) A contract or proposed contract for the sale or lease of consumer goods or services may not include a provision waiving the consumer’s right to make any statement regarding the seller or lessor or its employees or agents, or concerning the goods or services.
(2) It shall be unlawful to threaten or to seek to enforce a provision made unlawful under this section, or to otherwise penalize a consumer for making any statement protected under this section.
(b) Any waiver of the provisions of this section is contrary to public policy, and is void and unenforceable.
(c) Any person who violates this section shall be subject to a civil penalty not to exceed two thousand five hundred dollars ($2,500) for the first violation, and five thousand dollars ($5,000) for the second and for each subsequent violation, to be assessed and collected in a civil action brought by the consumer, by the Attorney General, or by the district attorney or city attorney of the county or city in which the violation occurred. When collected, the civil penalty shall be payable, as appropriate, to the consumer or to the general fund of whichever governmental entity brought the action to assess the civil penalty.
(d) In addition, for a willful, intentional, or reckless violation of this section, a consumer or public prosecutor may recover a civil penalty not to exceed ten thousand dollars ($10,000).
(e) The penalty provided by this section is not an exclusive remedy, and does not affect any other relief or remedy provided by law. This section shall not be construed to prohibit or limit a person or business that hosts online consumer reviews or comments from removing a statement that is otherwise lawful to remove.
Check out the last sentence in part (e): “his section shall not be construed to prohibit or limit a person or business that hosts online consumer reviews or comments from removing a statement that is otherwise lawful to remove.” That’s there because this law is all about a concern that consumers are “accepting” terms of use on websites that prevent them from making negative comments about the business – even if those comments are true. Basically, some businesses want to avoid bad Yelp reviews and will do anything to do so (short of, you know, actually providing good customer service.)
There’s no way of knowing exactly how widespread these clauses are. Nobody’s done a comprehensive, up-to-date survey of online terms of use that I know of. A recent article in MarketWatch pointed out a few examples of these types of clauses, including a bit about one New York hotel’s threat to fine any guest who posts a bad review $500. Remind me not to stay there.
These types of clauses are now firmly illegal in California. Unless, of course, this new law gets challenged in court. It’s hard to imagine that happening – what company wants to make a public issue of its supposed right to stifle the speech of its own customers?
So who has the right to take action to enforce this new code section? Just about anybody. Actions can be brought by state, county, or city officials, or the consumers themselves.
The law details the financial penalties for violations, but it’s not clear how they’re calculated. Let’s say a business posts a clause that’s contrary to this new code section. Do they get fined one time, or do they have to pay for each consumer who was purportedly bound to the terms of the invalid agreement? You can guess that there will be class action plaintiff’s attorneys who will argue for the latter interpretation.
Tip: If you do business with consumers in California, even if you’re not based in California, be sure to avoid these non-disparagement clauses in your online and paper contracts. These terms will not only make you look afraid of criticism, but they can now cost you many thousands of dollars. Review your contracts today.
And remember, all negative comments about this blog are strictly forbidden. That’s allowed under the new law, right?
