California Bans Non-Disparagement Terms in Consumer Contracts

Can you be sued for saying you did not like a product? Or because a business did not like your negative review on Yelp?

It has happened, and now California lawmakers have stepped in and banned the practice.

The issue involves non-disparagement clauses. A non-disparagement terms in a contract prohibits someone from making truthful, but negative statements about a business, 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, it was over priced, and give it one star, that is a negative review. These are disparaging comments about the restaurant.

Compare disparaging comments to defamation. If you slander or libel someone that means you have made factual statements about them which are false. Untruthful statements are still against the law in California if defamatory, and you can be sued for making them.

What was happening is bad businesses were seeing negative reviews appearing online on popular websites like Yelp. To stop negative reviews, and to only have positive reviews appear, businesses were including terms in their online purchase contracts which state the consumer cannot make any disparaging comments about the company.

Often, the abusive contract would include a term stating the customer automatically owed thousands of dollars in penalties saying anything negative about the business. The customer could also be required to pay the company’s attorney fees.

When a negative review appeared the company would threaten the consumer with thousands of dollars in damages unless their removed their review. Sometimes businesses actually sued it this had generated some publicity.

The new law in California creates Civil Code section 1670.8. The law states a business 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 provides it is illegal to have a non-disparaging clause in a contract, or even in a proposed contract.

A business also cannot try to enforce such a term, or threaten to enforce it.

If the business violates the law the consumer or the California Attorney General can sue. For a first violation the penalty is up to $2500. The penalties increase for subsequent violations.

Additionally, if the violation is intentional, which will usually be the situation, another $10,000 in penalties can be recovered.

These are in addition to any other damages allowed under the 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 California now imposes stiff penalties for any business who tries to prevent its customers from saying what they really think about their product or service.