You go to a new dentist and, before she will take you as a patient she requires you to sign an agreement that you won’t post negative reviews of her on the Internet. You go to book a wedding reception at a restaurant and before they will book your reception they ask you to sign a similar document. Even worse, you must agree that if you do post a negative review, you will owe the restaurant a $500 fine.
The Internet has been full of stories of this sort, but now one state — California — has put a stop to it. And, as is sometimes said when it comes to new laws, as California goes, so goes the country.
A bill signed into law in California on September 9, 2014, popularly referred to as the “Yelp” bill, prohibits the use of “non-disparagement” clauses in consumer contracts. The law takes effect on January 1, 2015.
Under the new law 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.” It will also be “unlawful to threaten or to seek to enforce” such a provision, or to “otherwise penalize” a consumer for making any such statement. The law carries statutory penalties ranging from $2,500 for the first offense, up to $10,000 for “willful” violations.
The impact of this law will not be limited to California businesses: it will apply to anyone doing business with consumers in California.
One aspect of this law that is important to understand is that it does not give consumers free license to defame businesses, nor does it limit the right of businesses to sue consumers for defamatory statements. It is limited to using a contract or proposed contract (whether online or on paper) to preclude the publication of reviews — even defamatory reviews — in the first place. If a review is defamatory, the business owner’s legal rights remain as they were before enactment of this law.
Practice tip: it is possible that the new law will be viewed as an invitation to class action plaintiffs to seek aggregated statutory damages. Therefore, it is important that companies that do business with consumers in California (whether the business itself is in California or not), review their contracts and online terms and conditions to remove non-disparagement clauses that would violate this law.