For businesses, a positive review on a website like Yelp can help bring people through the door. Poor write-ups, though, can send potential customers running the other way. Hoping to shield themselves from negative feedback, some companies have used non-disparagement clauses, which create penalties for consumers who say something that negatively affects a company or its reputation.
But under a law recently passed in California, these types of clauses are now illegal. AB 2365, popularly referred to as the “Yelp Bill,” prohibits companies from using non-disparagement clauses in contracts for the sale or lease of consumer goods or services. It also makes it unlawful for businesses in California to attempt to penalize someone for making negative comments, including on review websites like Yelp and TripAdvisor. The law, which took effect last January and is codified at California Civil Code section 1670.8, was inspired by a Utah couple whose credit rating was damaged after a business demanded a $3,500 penalty after they posted a negative review.
Like many states, California already had in place laws designed to protect people from strategic lawsuits against public participation, known as anti-SLAPP laws. These laws prevent companies from filing lawsuits claiming a consumer defamed their business with negative online reviews. The Yelp Bill takes that a step further, prohibiting these types of suits based on a breach of contract. The maximum penalty for companies who violate the law is $2,500 for the first offense, and $5,000 for each subsequent violation. If the violation is willful, intentional or reckless, an additional fine of up to $10,000 could be levied.
Section 1670.8 has no geographic limitations, so the law applies to any companies or persons doing business in California. As such, out-of-state businesses with prospective or current customers in California should also make sure they are in compliance with the law. That means businesses should review all consumer contracts, including online terms and conditions (i.e. clickwraps) posted on its website. If any contracts contain non-disparagement clauses, they should be revised and the clauses should be removed. Customers should also be notified of the updated terms.
Even if you don’t do business in California, the enforcement of these types of clauses is an issue worth close attention. Other states, including Maryland, have introduced legislation similar to the Yelp Bill. Similar federal legislation is also circulating through Congress.
Despite the new restrictions, the Yelp Bill does not leave a company without any legal recourse. Businesses can still bring claims against people who leave unfair reviews that are not true. Websites also have the ability to terminate user accounts, in accordance with the sites’ policies and procedures.