California Law Prohibits Non-Disparagement Clauses in Consumer Contracts

Thumbs_downprevious post discussed the growing popularity of non-disparagement clauses in website terms & conditions statements, which companies are starting to use to limit the posting of negative online reviews.   Although negative reviews can severely affect a company’s bottom line, California has now enacted a blanket prohibition against non-disparagement clauses in California consumer contracts.

On September 9, 2014, California Governor Jerry Brown signed a bill that bans such clauses.  The law is principally intended to protect online customer reviews, and calls for $2,500 for the first violation, $5,000 for each subsequent violation, and $10,000 for a willful, intentional or reckless violation. Significantly, the law also provides for a private right of action, meaning that it is likely to generate a veritable tsunami of class actions.

The law covers “a contract or proposed contract for the sale or lease of consumer goods or services,” and it prohibits any “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.”  The law further prohibits companies from threatening or seeking to enforce any non-disparagement clause.

Website terms and conditions are contractual in nature and govern the use of a company’s website and- by extension- the purchase of any goods or services through that website. This means that companies that include non-disparagement clauses in their terms and conditions statements risk litigation if they do business with California citizens, and should therefore remove their non-disparagement clauses immediately.

The full text of the new statute, California Civil Code Section 1670.8, is available here.

Author: Seth Heyman
Seth D. Heyman is a California attorney with extensive experience in advertising and marketing law, corporate law, contracts, governmental regulations, international business, and Internet law. He has counseled numerous successful companies, both public and private, and was responsible for regulatory compliance, contract management, corporate governance, and HR best practices for multiple organizations in many diverse industries, including marketing, telecommunications, energy, and technology development. He offers insight and guidance on federal and state direct mail, TV, radio, telemarketing, and Internet marketing laws, as well as online promotions, Internet privacy, data protection regulations, and similar matters.
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