California Bans Nondisparagement Clauses in Consumer Contracts

January 15, 2015

The “Yelp” Bill impacts any entity or person doing business with consumers in California.

Those who are fans of writing product or service reviews for sites such as Yelp will be pleased that California law just made it much easier for them to do so. The state recently passed a new law that makes it unlawful to include nondisparagement clauses in consumer contracts. Nondisparagement clauses generally restrict individuals from making statements or taking any other action that negatively affects an organization, including its reputation, products, services, management, or employees.

The new law, codified at California Civil Code section 1670.8,[1] which took effect January 1, specifically provides that “a contract or proposed contract for the sale or lease of consumer goods or services may not include a 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.” It is also “unlawful to threaten or to seek to enforce a provision made unlawful under this section, or to otherwise penalize a consumer for making any statement protected under this section.”

The law includes a civil penalty not to exceed $2,500 for the first violation and $5,000 for the second and for each subsequent violation. In addition, for a willful, intentional, or reckless violation of the law, a consumer or public prosecutor may recover a civil penalty not to exceed $10,000.

Because the law does not have any geographic limitations, any entity or person doing business with consumers in California should be aware of the law’s impact. Companies that do business in California and use nondisparagement clauses in their consumer contracts should consider removing such clauses from contracts to ensure that their organizations are in compliance with section 1670.8. This includes reviewing click-wrap or shrink-wrap agreements and the online terms of use posted on a company’s website. If click-wrap agreements or online terms of use include disparagement clauses, companies should remove the clauses from the relevant agreement and notify customers of the new terms by the method of notice stated in the agreement or post the new terms on the company’s website and provide clear notice of the changes to terms and conditions. Companies should also review any other signed agreements that they have in place with customers and amend them to remove any nondisparagement clauses.


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[1]. View the law here.

This article was originally published by Bingham McCutchen LLP.