Most consumers are likely unaware that they could be waiving their right to negatively review or otherwise criticize companies publicly. This right is waived by accepting a company’s online terms that include a non-disparagement clause. Non-disparagement clauses can be used by companies to penalize or seek fines from customers who write negative reviews about them. While these clauses became illegal in California this year, they are still legal across the rest of the United States. Non-disparagement provisions are common in employment contracts and lawsuit settlements but are relatively new for consumer contracts. Therefore, pertinent case law is scant and the issue of the legality of these provisions has been murky.
A new federal bill(formerly known as the “Yelp bill”), modeled on the California law, seeks to protect consumers from this bullying. The Senate Commerce Committee head, John Thune, along with Senators Brian Schatz and Jerry Moran, introduced the Consumer Review Freedom Act on September 16, 2015. The bill would prohibit “the use of certain clauses in form contracts that restrict the ability of a consumer to communicate regarding the goods or services offered in interstate commerce that were the subject of the contract.” This would outlaw non-disparagement clauses in consumer contracts and ban businesses from bullying their customers as a way to insulate the company from public criticism.
Yelp.com, a popular website where consumers can post public reviews of companies, has expressed their support for this Act, as well as the SPEAK FREE Act. Yelp has said that, “Having both of these laws in place at the federal level will ensure that Yelpers, and all Americans who care about their freedom of speech, are protected from wealthy bullies and powerful special interest groups.”
Why is this bill necessary? Consider the Palmer family, who were rightfully upset when products that they ordered from an online retailer were still not delivered to them after thirty days. The Palmers attempted to get in touch with the online retailer, KlearGear.com, to no avail, and so PayPal refunded their money. Because of their unsatisfactory experience, Mrs. Palmer posted a negative review of the company on RipoffReport.com.
In 2012, three whole years after Mrs. Palmer wrote the review, Mr. Palmer received an email from the online retailer demanding that the review be removed within 72 hours or the Palmers would have to pay a fine of $3,500. Where did the company get the gall to ask for such a thing? Apparently, the online retailer’s terms of sale included a non-disparagement clause to prevent individuals “from taking any action that negatively impacts KlearGear.com, its reputation, products, services, management or employees.” The Palmers refused to pay the fine, partly because the term was not on the website at the time of the purchase. The online retailer then reported this debt to credit agencies, greatly damaging the Palmers’s credit score.
In December of 2013, a non-profit organization, Public Citizen, filed suit against KlearGear.com and its debt collector in federal court on behalf of the Palmers. The Palmers were represented by Paul Alan Levy, a First Amendment attorney who works for Public Citizen. The suit sought a declaration that Mr. Palmer did not owe any “debt” for violating the “non-disparagement clause.” It sought compensatory and punitive damages from KlearGear.com for violations of the Fair Credit Reporting Act, defamation, interference with prospective economic relations, and infliction of emotional distress.KlearGear.com never appeared to defend. The district court granted the Palmers a default judgment and awarded them $306,750.
Americans are likely to simply presume that they may speak freely on their opinion about a company so long as they are being truthful. Therefore, like the Palmers, most consumers likely would not foresee that they would be threatened or penalized as a result of expressing their honest opinion. How many of us can honestly say that we dutifully read the “terms and conditions” every time we are asked to?
Non-disparagement clauses have the power to stifle free speech. This is plainly contrary to the principles of our nation. The U.S. Chamber of Commerce proclaimed on its website, “We are a country founded on the right of individuals to express themselves . . . It fosters competition, spurs debate, enhances diversity of thought, and increases options in the marketplace of products and services.”
If businesses were not held accountable by the ability of the consumer to rate their experience, then businesses would have less of an incentive to improve their product or service. Quality would diminish.
Not only is the stifling of speech against our nation’s spirit, but also, consumer silencing for fear of penalties could lead to less efficient commerce because of a lack of honest reviews by real people, which in this digital age, have an integral role in helping consumers to more easily and efficiently choose companies and products to use. Companies like Yelp.com and TripAdvisor.com, which allow consumers to post their experiences and opinions about companies and products, “help guide where consumers do business every day.”
The Consumer Review Freedom Act would not leave businesses without recourse when a consumer posts a dishonest misrepresentation about a business. Legal recourse may be considered if a customer review is defamatory and dishonest. Clearly, incorporating non-disparagement clauses to place legal restrictions on free speech so as to preclude negative consumer feedback should be illegal. With regard to honest consumer reviews, businesses should not try to solve the problem of bad publicity by threatening or penalizing consumers who write negative reviews. Rather, businesses should channel that energy into the improvement of their product and/or service.