Worried about negative online reviews of your business? You’re not alone. With the widespread reach of Yelp and Google reviews, among others, some business owners have included so-called “non-disparagement clauses” in contracts with consumers. That is, the business requires the consumer to agree to not make negative statements about the business online. If the consumer writes or posts a negative online review, he or she agrees to pay a fine to the business. As of January 1, 2015, a new law in California makes this practice illegal, and such clauses will not be enforced.
Non-Disparagement Clauses
The law, codified at California Civil Code Section 1670.8(a)(1), provides that “contracts or proposed 
contracts 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” and carries maximum statutory penalties of $2,500 for the first violation and $5,000 for each subsequent violation.
This law comes on the heels of stories around the country in which businesses fined customers for writing negative reviews. For instance, one New York hotel made a name for itself by threatening to fine brides and grooms if anyone in their wedding party wrote a negative review about the hotel on Yelp. While California’s law was not drafted in response to this hotel’s practices, it may have been enacted based on court cases in which businesses lost in their attempt to stop negative publicity. California is the first state in the country to enact this new law.
Out of State Businesses and California Law
Out of state businesses must also take heed. Essentially a law without geographic limitations, out-of-state businesses with prospective and current customers in California need to review any contracts they may have with consumers. However, it is important to note that the statute applies only in the consumer context. A consumer is an individual who, under California law, “seeks or acquires, by purchase or lease, any goods or services for personal, family or household purposes.” Therefore, a business that uses non-disparagement clauses in agreements with other businesses or in severance or settlement agreements will not be subject to this new law or its penalties. Thus, when engaged in non-consumer contracts, businesses can protect themselves with such non-disparagement clauses in their contracts. Speak with an experienced business lawyer about including such a clause in your next contract.
Consumer Reviews
Even in the consumer context, there is still some protection against untrue and unfair online reviews for those doing business in California. For example, a business may sue consumers for defamatory statements and may seek removal of untrue reviews from websites. A business may also provide its own statements in response to customers’ reviews. One positive result of online reviews: they provide a way for a business to identify areas to improve its customer service or its product.
The law does not provide a “safe harbor;” the law is already in effect in California, so businesses should review relevant contracts immediately for compliance. Because the law includes “proposed contracts,” it would cover online terms and conditions, so all online terms and conditions shown to a prospective customer should be reviewed.
For more information on how to address defamatory statements being made about your business, contact business lawyer Drew E. Pomerance today.
