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Wednesday, September 10, 2014

California Passes Law Prohibiting Non-Disparagement Clauses

So reports the LA Times:

Californians offering online opinions or reviews of businesses will have new legal protection under a bill signed Tuesday by Gov. Jerry Brown.

The measure by Assemblyman John A. Pérez (D-Los Angeles) aims to crack down on retailers seeking to stop negative online reviews by requiring consumers not to make negative public comments about the business.

Those requirements, known as non-disparagement clauses, are at times buried in the lengthy terms and conditions that some businesses ask customers to agree to before making a purchase. Pérez's measure makes such clauses illegal in most cases.
The bill is AB 2365. From the text of the bill:

SECTION 1. Section 1670.8 is added to the Civil Code, to read:

1670.8. (a) (1) 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. 
(2) It shall be unlawful to threaten or to seek to enforce a provision made unlawful under this section, or to otherwise penalize a consumer for making any statement protected under this section. 
(b) Any waiver of the provisions of this section is contrary to public policy, and is void and unenforceable.
The bill goes on to include monetary penalties for businesses violating the law. These penalties take the form of statutory damages which could be recovered in any lawsuit filed by a consumer or by a government agency.

In a previous post, I highlighted an instance where a company engaged in oppressive use of its non-disparagement agreement. In light of the potential for companies to use these clauses to oppress customers and silence criticism, I think that this law is a good idea. Companies remain free to remove any disparaging remarks that are posted on their websites, and they remain free to pursue defamation cases, so there are still legal remedies available for companies that are facing significant harm caused by false criticism.

It will be interesting to see the effect of this bill on non-disparagement agreements throughout the country. I imagine that many companies that employ these clauses do so on their websites. These companies should probably remove those clauses from their online forms, since there is a significant chance that these forms will be signed by customers in California.

UPDATE: 9/12/2014

Eugene Volokh notes that subsection (a)(2) of the bill may prohibit a dangerous amount of conduct. Not only does that subsection prohibit the enforcement of a non-disparagement clause, it also states that businesses cannot "otherwise penalize a customer" from criticizing the business.

Volokh worries that this subsection could be construed to restrict businesses from refusing to do business with customers who make constant, disparaging remarks. And Volokh worries that this subsection could be construed to restrict defamation lawsuits against consumers' statements that are indeed defamatory.

I suspect that the most likely penalty businesses would seek to impose on customers would be liquidated damages that are stated in the non-disparagement clause. But these liquidated damages provisions would presumably be barred by the ban on enforcement of the non-disparagement clause -- a prohibition that is stated in subsection (a)(2) in addition to the broader, "otherwise penalize" statement.

While I think that courts would be hesitant to characterize filing a defamation lawsuit as "penalizing" a customer, Volokh is correct to point out that subsection (a)(2) of the law could have been more carefully drafted.

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