VOL. 132 | NO. 119 | Thursday, June 15, 2017
Gag Clauses Outlawed
By Randy Hutchison
BrightLocal, a search engine optimization consulting company, found that 91 percent of consumers regularly or occasionally read consumer reviews in making a buying decision. Its survey also revealed that 84 percent of people trust online reviews as much as a personal recommendation and that 74 percent say positive reviews make them trust a local business more.
Consumers read reviews when booking travel, hiring a contractor, deciding where to eat, choosing a doctor or dentist, and for many other kinds of purchases. Angie’s List, TripAdvisor and Yelp are popular review websites. The BBB has published verified customer reviews in business profile reports for several years.
Not surprisingly, BrightLocal also found that negative reviews may discourage a consumer from dealing with a company. Some companies have reacted by inserting non-disparagement or “gag” clauses into their contracts or on their websites. Customers are generally unaware of them.
Such clauses violate the BBB’s Code of Business Practices and we’ve prohibited member companies from using them. The FTC took a stand against them when it sued Roca Labs, a weight loss supplement company based in Florida, for prohibiting its customers from posting negative reviews. The FTC also said the company paid customers to post positive reviews.
A Utah woman placed a $20 order with an online retailer. When the items didn’t arrive and the company was not responsive, she posted negative comments on a review website. She didn’t realize the retailer’s website contained a clause prohibiting negative reviews. When she refused to remove the review, the company fined her $3,500 and reported the debt to a credit reporting agency when she didn’t pay. She ultimately sued the company and won a $306,000 judgment.
A Texas pet-sitting company sued a couple for $1 million after they posted a one-star review on Yelp. A fellow posted a negative review about a home he and his brother rented in the Catskill Mountains. The landlord called and pointed out a clause in the rental agreement the brother signed that prohibited publishing “any disapproval of the property.”
California became the first state to prohibit gag clauses in 2014. The issue was addressed at the federal level when President Obama signed the Consumer Review Fairness Act (CRFA) in December 2016, with an effective date of March 14 of this year. It prohibits gag clauses in form contracts that consumers don’t have a meaningful opportunity to negotiate.
A violation of the CRFA would be considered an unfair and deceptive trade practice under the Federal Trade Commission Act, with penalties that could run tens of thousands of dollars.
The law does not provide protection to consumers for defamatory or libelous reviews, for breach of confidentiality, or for violation of some other law.
Randy Hutchinson is president and CEO of the Better Business Bureau of the Mid-South and can be reached at email@example.com