California Bans Non-Disappearance Terms in Consumer Contracts
Can you get sued for saying you didn’t like a product? Or because a business didn’t like your negative review on Yelp?
It has happened, and now California lawmakers have stepped in and banned the practice.
The issue involves non-disappearance clauses. Non-disparagement terms in a contract prohibit anyone from making any truthful, but negative, statements about a company, its employees, or products.
For example, if you write a review about your experience at a restaurant saying the service was slow, the food was cold, the price was excessive and you give it one star, that is a negative review. These are disappearing comments about the restaurant.
Compare derogatory comments with slander. If you slander or slander someone, that means you have made factual statements about them that are false. False statements are still against the law in California if they are defamatory, and you can be sued for making them.
What was happening was that bad companies were seeing negative reviews appear online on popular websites like Yelp. To stop negative reviews and only positive reviews from appearing, companies have included terms in their online purchase contracts that the consumer may not make derogatory comments about the company.
Often, the unfair contract would include a term stating that the customer automatically owes thousands of dollars in penalties that say something negative about the business. The client may also be required to pay the company’s attorney’s fees.
When a negative review appeared, the company threatened the consumer with thousands of dollars in damages unless the review was removed. Sometimes companies actually sued it, this had generated some publicity.
The new law in California creates section 1670.8 of the Civil Code. The law establishes that a company can no longer include these terms in a consumer contract. This is a contract for the sale of consumer goods or services. The new law does not apply to business-to-business contracts.
The new law makes it illegal to have a non-derogatory clause in a contract, or even in a contract proposal.
A company also cannot try to enforce such a term or threaten to enforce it.
If the company violates the law, the consumer or the California Attorney General can sue. For a first offense, the fine is up to $2,500. Penalties increase for subsequent violations.
Also, if the violation is intentional, which is often the situation, another $10,000 in fines can be recovered.
These are in addition to any other damages permitted by law.
Finally, California says this is an important public policy issue and a consumer cannot be required to waive the law. Any waiver is void.
The bottom line is that California now imposes stiff penalties on any business that tries to prevent its customers from saying what they really think about their product or service.