California Law: Consumers Can’t Be Punished For Negative Reviews

The business of online reviews is making headlines once again. This time, it’s the consumers winning a round after essentially they lost one earlier this year. We previously reported about the legal battle between Yelp and three California business owners. The entrepreneurs claimed that Yelp punished them in some way for not buying their advertising product. In the end, the courts sided with Yelp. The score for the consumers came when California Governor Jerry Brown signed AB 2365 into law on September 9^th. The bill makes nearly certain that consumers can’t be stopped or penalized for leaving negative online reviews. Specifically, the bill reads, “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.”

California Assemblyman John A. Perez (D) is behind this new law. He explained that, “No consumer should ever face penalties for voicing their opinions on the services or products they have purchased, and California law is now clear that no company has the ability to silence consumers.”

The bill is meant to clash directly with so-called non-disparagement clauses, which are intended to prevent negative consumer feedback. The phrases that make up the non-disparagement agreements are often buried in a terms of service document. Businesses use them to protect their interests. This is especially important to small businesses for which a few small bad online reviews could turn their venture upside down.

Two examples in which non-disparagement clauses did the companies more harm than protected them are that of an NYC Hotel and French E-Commerce Company. The Union Street Guest House, in New York invoked a clause in their guest agreement that allowed them to fine hotel guests $500 for each negative review. The stay and fines occurred during an undisclosed period in 2014. That hotel now has a massive wave on negative online reviews and an SEO footprint that tells guests to stay away. KlearGear, an online shopping site for “geeks” has been under fire for trying to force former customers to pay $3,500 for leaving the company a negative online review. Why was the negative review left in the first place? The customers paid for and never received their order. On June 25^th of this year, a federal judge ruled against Kleargear, forcing them to pay the customers $306,750.

AB 2365 will render null and void any disparagement clauses in seemingly hidden within business contracts in the state of California. Hidden is the keyword. If a consumer signs an agreement with an non-disparagement clause and they waive their right in a “knowing, voluntary and intelligent manner,” then the new law will not likely protect them from the impact of their signature. Major questions surrounding this law include what exactly it will mean moving forward? Will other states adopt similar laws? Does this law encourage good business practices or is it an example of the government regulating private business? The answer is up to you.