As the nation’s first its kind, on September 9, 2014, California passed AB 2365, a law that now prohibits businesses from including provisions in contracts in which a consumer will waive his or her “right to make any statement regarding the seller or lessor or its employees or agents, or concerning the goods or services.” A business that does so will be fined $2,500 for a first-time violation, $5,000 for any subsequent violation(s), and potentially $10,000 for “willful, intentional, or reckless violations.”
Perhaps other states including New York and Utah will follow. For example, Union Street Guest House of Hudson, N.Y. had enacted a policy allowing the establishment to deduct $500 from guests’ deposits for each negative review placed online.
Specifically, its website read, in relevant parts:
“If you have booked the Inn for a wedding or other type of event anywhere in the region and given us a deposit of any kind for guests to stay at USGH there will be a $500 fine that will be deducted from your deposit for every negative review of USGH placed on any internet site by anyone in your party and/or attending your wedding or event (emphasis added). If you stay here to attend a wedding anywhere in the area and leave us a negative review on any internet site you agree to a $500 fine for each negative review.”
Union Street subsequently received a flood of negative reviews about this policy and removed it.
California’s new law was inspired by the experience of a Utah couple that posted a negative review about their purchase from KlearGear, a French on-line retailer, but did not pay the $3,500 “Non-disparagement Fee” that was included in the transaction language and demanded by KlearGear. KlearGear responded by turning over the debt to a collection agency which reported the couple’s failure to pay to credit bureaus, damaging their credit score. Ultimately, KlearGear was sued in a federal court in Utah and the couple was awarded a default judgment of $306,750 in compensatory and punitive damages plus attorneys’ fees.
Ah, the fine print.