California Passes Non-Disparagement Consumer Contract Clause Ban

California's AB 2365 which prohibits businesses and service professionals from contractually silencing customers who may want to complain about their experiences has been passed by California's legislature and is awaiting the approval of Gov. Brown.  In layman's terms, the legislation generally prohibits a business from inserting into its adhesion contracts and terms of service language that requires a consumer to waive their right to publicly comment about their customer experience on websites such as Yelp, Ripoff Report, etc...

At first glance, this bill may sound like the government passing legislation that is looking for a problem.  Unfortunately, this legislation is needed because some dishonest retailers, service professionals, etc.... are including in their agreements clauses that ban their customers/clients from truthfully telling the world about their negative experiences.  

Earlier this year,  I discussed the Kleargear.com case.  In short, the retailer failed to deliver on its promise and the customer complained online about it on Ripoff Report.  Sometime after the customer complaint was posted, Kleargear.com inserted these clauses into their terms of service:

"In an effort to ensure fair and honest public feedback, and to prevent the publishing of libelous content in any form, your acceptance of this sales contract prohibits you from taking any action that negatively impacts KlearGear.com, its reputation, products, services, management or employees. 

Should you violate this clause, as determined by KlearGear.com in its sole discretion, you will be provided a seventy-two (72) hour opportunity to retract the content in question. If the content remains, in whole or in part, you will immediately be billed $3,500.00 USD for legal fees and court costs until such complete costs are determined in litigation. Should these charges remain unpaid for 30 calendar days from the billing date, your unpaid invoice will be forwarded to our third party collection firm and will be reported to consumer credit reporting agencies until paid."

Kleargear.com sent the customer a bill for $3,500 for allegedly violating the above terms.  After the customer refused to pay, Kleargear.com reported the matter to credit rating agencies, claimed the terms were in effect at the time of the customer interaction and this negatively affected the customer's credit report.  In response, the customer sued Kleargear.com and was awarded more than $300,000 in compensatory and punitive damages. 

For those who may not believe this is a growing trend, another recent example demonstrates the need for this legislation.  The New York Post earlier this month exposed a hotel that inserted into its agreements the ability to fine its guests $500 for negative online reviews.  I am also aware of multiple non-publicized similar matters where people have publicly complained about a service provider and when the business became aware of the complaint they threatened the reviewer with a lawsuit. 

In America, we have fought multiple wars for the right to complain freely about bad politicians, governments, etc... so I believe we should have the right to also complain freely about bad private sector service.  While I wish this bill wasn't needed, the insertion of non-disparagement clauses into legally binding agreements appears to be a growing trend.  From a public policy perspective, since we live in a free and democratic society it makes sense to protect consumers from repugnant restrictions on publicizing personal opinions.    

Copyright 2014 by Shear Law, LLC All rights reserved.

California Introduces Social Media Anti-Disparagement Consumer Protection Bill

California recently introduced AB 2365 which would prohibit businesses and service professionals from contractually silencing customers who may want to complain online about their experiences.  While I am generally not in favor of increased digital regulations, this bill may be a step in the right direction because more businesses are exploring contractually silencing their critics.

Kleargear.com is the poster child for how not to treat consumers in the Social Media Age.  It inserted a non-disparagement clause into its online agreements several years ago in order to pursue disgruntled customers who complained about their service.  For example, Kleargear.com threatened a former consumer who wasn't even subject to its non-disparagement clause since she made her purchase before the clause was effective.  The company demanded $3,500 from this customer because it did not agree with her online review.  When this former consumer refused to pay she was reported to multiple credit reporting agencies which caused real world damages.    

During the initial media firestorm when Kleargear.com's reprehensible behavior was publicized last year, it removed the non-disparagement clause.  However, it appears that it was recently reinstated.  Kleargear.com's non-disparagement clause states:

"In an effort to ensure fair and honest public feedback, and to prevent the publishing of libelous content in any form, your acceptance of this sales contract prohibits you from taking any action that negatively impacts KlearGear.com, its reputation, products, services, management or employees. 

Should you violate this clause, as determined by KlearGear.com in its sole discretion, you will be provided a seventy-two (72) hour opportunity to retract the content in question. If the content remains, in whole or in part, you will immediately be billed $3,500.00 USD for legal fees and court costs until such complete costs are determined in litigation. Should these charges remain unpaid for 30 calendar days from the billing date, your unpaid invoice will be forwarded to our third party collection firm and will be reported to consumer credit reporting agencies until paid."

Kleargear.com's behavior demonstrates that without robust digital consumer protections some companies will abuse their power and insert very troubling language into their Terms of Use/Sale agreements.  Caveat emptor when making online purchases.  

Copyright 2014 by the Law Office of Bradley S. Shear, LLC. All rights reserved.