Businesses barred from gagging customer reviews under new US law

Customers upset over their lukewarm dinner, subpar hotel stay, or most any other disappointing business transaction now have a legal right to air their grievances online, including on third-party platforms such as Yelp or TripAdvisor, thanks to a bill President Obama signed into law last week.

Some companies had sought to guard their reputations by burying non-disparagement clauses deep in their business contracts, then threatening to sue clients who published negative reviews. In 2014, for instance, a New York inn threatened guests with a $500 fine for a bad review. 

But the Consumer Review Fairness Act of 2016, which passed Congress with bipartisan support, voids such contracts, defending the public's right to criticize companies large and small.

"It's a valuable piece of legislation that prevents businesses from forcing consumers to give up their free speech rights," Ken Paulson, the president of the First Amendment Center at Vanderbilt University in Nashville, Tenn., tells The Christian Science Monitor in a phone interview.

One particularly egregious case drew nationwide attention, helping to spur the passage of a state law in California two years ago and the federal law signed Wednesday: In 2008, John and Jen Paylmer of Utah were Christmas shopping when they placed an order with online retailer KlearGear. The products never arrived, and the couple could not reach a satisfactory resolution with customer service representatives, so Jen Palmer posted a negative review online.

Years later, the company sent the Palmers an email demanding that the negative review be taken down. The post violated a non-disparagement clause in the company's terms of service, and the couple would be fined $3,500 if they refused to remove the critical remarks, the company claimed. When the Palmers resisted, the company reported the fine as an unpaid bill to several credit bureaus, harming the couple's credit score, as NPR reported.

So the Palmers went to the press and to court with the help of consumer rights advocacy group Public Citizen. Ultimately, they won nearly $307,000 in 2014 after the company failed to respond, as Benjamin Glaser reported for DealNews at the time:

Despite the ruling, this case still doesn't necessarily determine whether non-disparagement clauses are legal, or whether they unfairly violate customers' First Amendment rights. Part of the Palmers' case rests on their claim that KlearGear's non-disparagement agreement was not actually part of the TOS [terms of service] back in 2008; and the default ruling was triggered by the Paris-based company being a no-show in court. So this particular case had a lot of technicalities and details that obscured the central issue of non-disparagement.

While the Palmers' case may be an extreme one, it would be unsafe to assume it stands alone, some observers say.

"Surely 95 percent of the time consumers simply remove the review, rather than stand behind their words, in order to avoid any potential legal action," Eric Goldman, a law professor at Santa Clara University School of Law in California, told NPR. "So the number of lawsuits are fairly rare because there's a much larger group of reviews that have been removed under the threat of lawsuits."

If a customer ultimately prevails in court, then what's the harm in businesses threatening to sue them over their online reviews? Paul Alan Levy, an attorney with Public Citizen, says positive reviews are far less likely than negative reviews to spawn lawsuits. That means negative reviews are more likely to be endangered by a business's bullying tactics.

"So if you have a system of non-disparagement clauses which prevent consumers from making negative statements about businesses, it skews the marketplace of ideas," Mr. Levy told Consumerist.

This law applies to contractual relationships between private parties. It does not pertain to the relationship between individuals and the government, so it does not involve the First Amendment directly, Mr. Paulson says.

"But it is very much a free speech issue," he adds. "It is very much a matter of making sure that barely-read clauses don't force citizens to give up what is a constitutional right to speak out."

This law, furthermore, does not diminish the full force and effect of libel law. Businesses can still successfully sue customers who post false and defamatory statements online. The law contains additional carve-outs to preserve existing laws on confidentiality and other matters, and it preserves a platform's right to remove or refuse to display a review.

"This isn't a get-out-of-jail-free card," Paulson says.

Rep. Leonard Lance (R) of New Jersey introduced the measure in April in the US House of Representatives, with Rep. Joe Kennedy III (D) of Massachusetts as a cosponsor. It passed in September.

"This law is about protecting consumers posting honest feedback online," Representative Lance said in a statement.

Sen. Jerry Moran (R) of Kansas introduced the Senate's version of the bill in September 2015, with Sen. Brian Schatz (D) of Hawaii and Sen. John Thune (R) of South Dakota cosponsors. It passed last December.

"Just as word of mouth is used by family and friends to share experiences with particular brands or businesses, online reviews have significant benefits to consumers in their purchasing decisions," Senator Moran said in a statement.

For companies, blocking negative reviews may seem tempting – but ultimately, can make a poor marketing strategy.

Kim Saxton, a clinical associate professor of marketing at Indiana University's Kelley School of Business in Indianapolis, says she understands why a company would want to guard its reputation online by burying a non-disparagement or gag clause deep in a contract somewhere.

"But it's a horrible business practice," Dr. Saxton tells the Monitor in a phone interview. "I mean, if someone complains because they're dissatisfied and what you do is you do something negative to them, that does not right the situation."

Saxton has spent the past several years researching social media and blogging as they pertain to business, and she has advised companies on best "service recovery" practices they should pursue after receiving unfavorable feedback from a consumer.

"It's a bad business practice to be punitive toward dissatisfied people," she says. "You need to figure out what the root of the problem is and fix it."

Considering how sparsely these non-disparagement clause disputes have been reported – despite close tracking by Consumerist and other publications – the bipartisan congressional action has taken some by surprise.

"I wouldn't have thought that this phenomenon was big enough to require intervention, myself," Saxton says.

Since passing the law will not harm businesses that are already practicing good customer service, there's a public service dimension to what policymakers have done in this case, Saxton says. Whereas some businesses had been trying to bulldoze their way through negative reviews online, Congress and the president have alerted the public to their right to resist.