Consumer News

New Law Says You Have a Right to Gripe

California becomes first state to ban non-disparagement clauses. Similar federal proposal expected to follow.

Consumer News

New Law Says You Have a Right to Gripe

Score one for consumers with opinions. California has enacted legislation – the first state in the nation – that prohibits non-disparagement clauses aimed at preventing customers from writing negative reviews of a company. And Californian Congressman Eric Swalwell is set to propose similar federal legislation this week.

The new law prohibits a company from threatening or otherwise penalizing a consumer for making certain disparaging statements regarding the seller or its products or services and will slap companies with fines ranging from $2,500-$5,000 plus an additional $10,000 for violating it – in essence reversing an alarming trend of penalties washing over consumers.

In the past few years, consumers have reported being ensnarled in some outrageous non-disparagement clauses, including one that fined a couple $500 for every negative review of the venue posted by wedding guests.

In another example, a Utah couple – John and Jen Palmer– who refused to pay a $3,500 fine imposed by an online store,, saw their credit downgraded after posting a negative review of the company when the products they ordered didn’t arrive. However, a suit against Kleargear brought on the couple’s behalf by Public Citizen, a Washington D.C. based consumer advocacy group, yielded the couple a $306,750 judgment in their favor. The U.S. District Court in Utah held that: is liable to Plaintiffs for violating the federal Fair Credit Reporting Act, for defamation, for intentional interference with prospective contractual relations, and for intentional infliction of emotional distress… reached out to Kleargear for comment but the company has not responded.

Jen Palmer told that she hoped the judgment and passage of the California legislation would spur further legal protections for consumers.

“We’re very pleased that California was inspired by our situation and has taken the initiative to pass consumer protection legislation,’’ she said. “One of the things that John and I were hoping for in the process of our lawsuit, aside from clearing up his credit report, was that we could ensure nobody else would have to go through the nightmare we experienced. We knew early on that this fight would be for everyone else who might also be threatened by a company simply for posting a truthful but negative review about a transaction.”

Scott Michelman, staff attorney for Public Citizen Litigation Group, said the California law provides important protections.

The new law provides important protection for consumer speech by barring the use of non-disparagement clauses and giving both public and private actors a powerful tool to deter businesses that would bully consumers into silence.

However, the fight over consumer reviews continues as companies try to protect their reputations and review sites face scrutiny of their own.

Yelp is fighting a legal action in Virginia seeking to compel it to reveal the identity of consumers who posted anonymous negative comments about a carpet cleaning company.  The company sued the consumers alleging defamation, which is not protected speech. Yelp objected saying revealing the posters’ identities would violate their First Amendment rights to voice opinions anonymously. The Virginia Supreme Court is reviewing the case.

Yelp itself just won a court battle when the Ninth Circuit Court of Appeals ruled that it could manipulate the ratings of a business depending on whether it advertises with Yelp. Yelp says it doesn’t do that, but the court said if it did manipulate reviews to determine ratings, it wouldn’t constitute extortion. Yelp, in its terms of service, notes: “We reserve the right to remove, screen, edit, or reinstate User Content from time to time at our sole discretion for any reason or no reason, and without notice to you.) Businesses are finding creative ways around that, however.

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