Many businesses across the country may wonder if they can prevent their customers from making negative online reviews about their products or services. California recently passed a law making it illegal for businesses to penalize consumers for bad online reviews. This was the legislatures response to a trend of businesses attempting to enforce non-disparagement type clauses in their consumer agreements and penalize California residents. The damage done by a negative online review, such as a posting on a website like the ripoffreport.com or a Better Business Bureau (BBB) complaint can reap untold damage to your business’s reputation and branding. In fact, any complaint made with the BBB will remain publicly visible for a period of 36 months from the date of the complaint. That is a bummer because the BBB is not in the business of deciding who is telling the truth when a dispute or complaint arises. That basically means that unreasonable demands, flat-out lies or a simple genuine misunderstanding can cast your business in a bad light with potential customers and clients even though it was at no fault.
So, can your business protect itself against negative online reviews by restricting customers or clients from making them in the first place? The short answer is maybe. The legal system really hasn’t dealt with this issue specifically except in California. But, what about enforceability of non-disparagement clauses in other states? Can your business use a non-disparagement clause to prevent bad online reviews? Non-disparagement clauses are more common in agreements between employers and employees, settlement agreements and in the business arena. But, they can also be used as a tool like any other contractual provision to restrict negative online reviews, at least in theory. Unfortunately, right now there simply isn’t much precedent as to whether a business can restrict the speech of its customers or users in this manner.
As stated, California has an actual law that has now been passed restricting non-disparagement clauses in consumer agreements. In other states without a bad review law, this specific issue would need to be analyzed in the courts. General contract principles and defenses to enforceability under common laws lend some guidance. Under general contract law principles, if the use of a non-disparagement clause in a consumer agreement is deemed to be a contract of adhesion, it would be carefully scrutinized by a court. The possibility of unequal bargaining power, unfairness and unconscionability may render it illegal. There are many factors that determine this, including the nature of how the consumer gave assent to the terms, the possibility of unfair surprise, any lack of notice, etc. There is also what is known as the “doctrine of reasonable expectations”, a legal principle that has been used by many courts to invalidate parts or all of a contract for adhesion. The court basically says that the consumer, the weaker party, will not be required to abide by the terms of the contract that are beyond what he or she would have reasonably expected.
Additionally, do these types of restrictions violate the First Amendment as a restriction on protected free speech? The answer to that question is far beyond the scope of this article (or my knowledge). But, we have a long-standing history in this country to honor the principle of freedom of contract. In addition, the First Amendment also applies to laws that are passed by Congress. Until a federal court rules specifically on this issue, its unclear.
However, a recent case in Utah did assert a claim of a First Amendment violation related to a non-disparagement clause in a consumer agreement. In that lawsuit, the company KlearGear was sued by 2 consumers (a married couple) for damages arising from the company’s attempt at enforcing a non-disparagement clause in its terms of sale. One of the plaintiffs received an e-mail from KlearGear demanding that a negative online review posted by the other plaintiff be deleted within 72 hours or that the plaintiff pay $3,500. KlearGear claimed he was in violation of the company’s “non-disparagement clause” contained in its terms of sale. The plaintiffs, in turn, claimed the clause did not appear in the terms that they had agreed to when they placed their order in 2008. They refused to pay or take down the review and KlearGear sent a collection agency to them for this money, which damaged their credit.
In their lawsuit, the couple claimed that the non-disparagement clause violated the First Amendment of the Constitution as a waiver of a fundamental right not made knowingly or voluntarily and that the clause was generally unconscionable. (They also claimed that no non-disparagement clause appeared to be present at the time purchases were made.)
The court ended up awarding the plaintiffs over $300,000 in damages due to a default judgement. Unfortunately, the case was never decided on the merits and we never received any clarity from the court. But, that lawsuit does at least identify the legal arguments consumers may attempt to assert in an effort to invalidate non-disparagement clauses preventing bad online reviews.
Even if there had been a non-disparagement clause present at the time of purchase, the clause may not have been enforceable. Whether the courts will look upon these types of provisions as generally unfair or unconscionable vs. invalidating them based on facts such as inadequate contract assent or notice, etc. remains unknown.
In 2003, the New York attorney general’s office sued Network Associates (later known as McAfee) for a “censorship clause” that prohibited users of its software from publishing reviews without “prior consent” from the company. (People of the State of New York v. Network Associates.) The clause was deemed to be “unenforceable, illegal, and deceptive.” by the Supreme Court of New York. Unfortunately, the decision was based on a separate issue of consumer fraud and ignored the specific question of whether a non-disparagement clause restricting bad online reviews is enforceable.
Nevertheless, many lawyers and legal scholars believe that if this specific issue were ever litigated, it would likely be struck down as illegal as an unconscionable provision. But, generally speaking, would the clause need to be a surprise term in the contract that is so unfair that a reasonable party would not have knowingly agreed to be bound by the clause? What about when the consumer is not taken by surprise by such a clause and affirmatively signifies that he or she is aware of it and agrees to be bound by the clause?
What is clear is that this type of clause would not be expected by your customers or users if it imposes penalties for otherwise free speech. Any chance at enforceability, if at all, would definitely seem to depend on adequate notice and assent. Then again, maybe even proper notice won’t matter since it is a restriction on a fundamental right of free speech, which the courts have always frowned upon.
The better question is whether your business should attempt to stop negative online reviews at all. Recent examples have shown this is likely to hurt your business’s branding and credibility in the eyes of your customers. For instance, when a New York hotel posted a policy to charge customers $500 for a bad online review, it completely back-fired. It resulted in dozens more negative online reviews. Other companies have also tried to stop negative online reviews, but have ended up changing their policies after experiencing bad publicity.
Ultimately, your business or its legal counsel may believe that such a clause may be enforceable with proper notice. The best strategy may be to handle any negative online reviews professionally and in a manner that always places your business in the best light, and not attempt to stop them.