Lawsuit Alert - Non-Disparagement Clauses
A new law in California makes it illegal, with up to a $12,500 fine for a first violation, to include in a contract for the purchase of consumer goods or services a term prohibiting or penalizing the consumer from making a statement about their purchase:
AB*2365 * Assembly Bill*– CHAPTERED
What has happened and why the new law?
Some businesses have not been happy with online reviews on places like Yelp. To deter bad reviews their online purchase contracts include a "non-disparagement" clause which says the consumer cannot make any disparaging comments about the company, employees, or products, and if they do have to pay penalties of thousands of dollars. Some businesses have sued customers who wrote negative reviews about them.
California has now banned the practice and the ban cannot be waived. The law should go into effect January 1, 2015.
What is disparagement?
If you state something negative or that puts someone in a negative light, even if truthful, that is disparagement.
If you state something factually false, which is defamatory, you could still be sued for defamation.
My office has for years not allowed clients to sign contracts with non-disparagement clauses because they are litigation traps. Almost anything can be considered disparaging. I have seen someone claim a statement that a product was "good" be considered disparaging because they did not say it was "great".
If you are using "generic forms" not coming from an attorney, be sure to check your terms. Non-disparagement terms can be common boilerplate you may not even realize are in your terms.
Does this apply if I am not in California?
Possibly, if you are selling goods to California consumers. You will want to be sure your website / purchase terms state the law of your state applies and the contract is being entered into in your state.
What do do
Check your legal terms if you are selling consumer goods or services (not business to business products) to see if there is a clause prohibiting the buyer from making disparaging comments. If so, delete it. Even if you are not in California, the bad publicity caused by a term trying to avoid bad publicity can be brutal.
.
AB*2365 * Assembly Bill*– CHAPTERED
What has happened and why the new law?
Some businesses have not been happy with online reviews on places like Yelp. To deter bad reviews their online purchase contracts include a "non-disparagement" clause which says the consumer cannot make any disparaging comments about the company, employees, or products, and if they do have to pay penalties of thousands of dollars. Some businesses have sued customers who wrote negative reviews about them.
California has now banned the practice and the ban cannot be waived. The law should go into effect January 1, 2015.
What is disparagement?
If you state something negative or that puts someone in a negative light, even if truthful, that is disparagement.
If you state something factually false, which is defamatory, you could still be sued for defamation.
My office has for years not allowed clients to sign contracts with non-disparagement clauses because they are litigation traps. Almost anything can be considered disparaging. I have seen someone claim a statement that a product was "good" be considered disparaging because they did not say it was "great".
If you are using "generic forms" not coming from an attorney, be sure to check your terms. Non-disparagement terms can be common boilerplate you may not even realize are in your terms.
Does this apply if I am not in California?
Possibly, if you are selling goods to California consumers. You will want to be sure your website / purchase terms state the law of your state applies and the contract is being entered into in your state.
What do do
Check your legal terms if you are selling consumer goods or services (not business to business products) to see if there is a clause prohibiting the buyer from making disparaging comments. If so, delete it. Even if you are not in California, the bad publicity caused by a term trying to avoid bad publicity can be brutal.
.
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George Wright -
Thanks
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