The internet offers seemingly infinite possibilities for businesses to connect with their customers and reach out to new ones. It also gives consumers nearly unlimited ways to communicate with businesses and also with other consumers about businesses. Websites like Yelp enable consumers to post reviews of businesses for the public to see. Many businesses take negative reviews as a sign that they need to reconsider some aspect of their operations. A few, however, have taken a more assertive stance by attempting to bar customers entirely from posting negative reviews. A law passed by Congress and signed by President Obama in late 2016, the Consumer Review Fairness Act (CRFA) of 2016, prohibits businesses from using form contracts that purport to restrict consumers’ ability to post negative or critical reviews, commonly known as “gag clauses” or “non-disparagement clauses.”
At first glance, a contract prohibiting someone from posting negative reviews to a site like Yelp, while possibly allowing positive reviews, might seem to violate the free speech guarantee of the First Amendment. This is not entirely accurate, though, since the prohibition comes from a contract between two private parties—a business and its customer. The First Amendment, simply stated, only prohibits the government from imposing content-based restrictions on speech. A private party, such as a restaurant or retail store, is legally permitted to eject a customer for almost any reason, including offensive speech.
One exception to the First Amendment’s free speech protection is defamatory speech. This is a statement made to the public that is false, that causes harm to the subject of the statement, and that the person making the statement knows or should know is false. A spoken defamatory statement is known as slander, and a written one is called libel. A customer who posts a negative review of a business that contains false information could be liable to the business for damages in a defamation lawsuit. The CRPA does not concern itself with this type of situation but instead with contractual clauses that prohibit both truthful and false negative reviews.
Parties entering into a contract may agree to perform or desist from performing certain actions. An important feature of an enforceable contract is that all parties give informed consent to every provision. Businesses regularly use form contracts that consumers sign without reading. The law allows this as long as the contract contains no significantly burdensome and unexpected restrictions or obligations.
A gag clause arguably counts as something that most consumers would not expect to find in a form contract. Examples include a New York hotel whose contract stated that customers had to pay $500 for any negative review posted online, as well as a pet-sitting company that filed a $1 million lawsuit alleging breach of a non-disparagement clause against a customer who posted a one-star review. The CRPA states that all such clauses are invalid and authorizes enforcement actions by the Federal Trade Commission and state attorneys general.
Business lawyer Samuel C. Berger represents businesses, business owners, and entrepreneurs in the New York City and Northern New Jersey region. Our fixed-fee legal-service packages cover a wide range of matters for our clients. To schedule a confidential consultation with a member of our skilled and experienced team, contact us today online, at (201) 587-1500, or at (212) 380-8117.
More Blog Posts:
Jury Verdict Could Have Major Impact on Digital Technology and Copyright Law for Businesses in New Jersey and Around the Country, New York & New Jersey Business Lawyer Blog, June 2, 2016
Writing or Soliciting False Reviews Can Result in Liability for Small Businesses, New York & New Jersey Business Lawyer Blog, August 18, 2014
Intellectual Property Rights and Monetary Value of Business Social Media Accounts, New York & New Jersey Business Lawyer Blog, March 27, 2014