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Proposed Law Prohibits Contracts Punishing Customers’ On-Line Negative Reviews

Many businesses leave their customers little choice but to accept or “click through” lengthy contracts which include many clauses they are unfamiliar with, and don’t bother to read. One of the more pernicious clauses some companies insert into these documents prohibit customers from criticizing their products on line, or elsewhere. Some of these “gag clauses” actually impose significant monetary penalties ($500!) on the consumer who posts a prohibited bad review of the company’s products or services.

In response to this practice, the “Consumer Review Fairness Act of 2016” has been passed and signed into law. This law voids gag clauses, and prohibits offering a contract with any such clauses.

There are important limitations to this law. It does not apply to employment or independent contractor agreements. The law also has no impact on any party’s right to remove any online content which is “clearly false or misleading,” is defamatory, or is unrelated to a party’s goods or services.

This law is a step in the right direction, but there are some obvious concerns. First, individual consumers are not empowered to enforce this law; they must complain to the FTC or a state agency for that, and then wait and see if that agency will indeed act. Also, this law only applies to contracts imposed “without a meaningful opportunity to negotiate” the offending clause. That exception gives contracting parties easy means for avoiding the law altogether. We’ll see how these limits sort themselves out in the months to come.