FTC smacks down anti-review ‘non-disparagement clauses’ in form contracts

There are numerous studies circulating that show how important reviews are to consumer purchase decision-making. To protect the integrity of online reviews Congress passed The Consumer Review Fairness Act (CRFA) in 2016. This was largely modeled on an earlier California law.

CRFA makes non-disparagement clauses illegal. The intention of CRFA was to “prohibit the use of certain clauses in form contracts that restrict the ability of a consumer to communicate regarding the goods or services offered in interstate commerce that were the subject of the contract, and for other purposes.”

These terms are typically called “non-disparagement” clauses and have been used periodically by professionals and corporations to pre-empt and prevent negative reviews. They often provide financial penalties or the right to sue for their violation. But they’re illegal.

Trying to get away with it anyway. Apparently quite a few businesses didn’t get the memo. Last week the FTC announced that it had settled administrative complaints with five firms using these illegal clauses in their customer contracts:

• A Waldron HVAC
• National Floors Direct
• LVTR LLC
• Shore to Please Vacations
• Staffordshire Property Management

The FTC administrative complaints were originally announced in May and June. (The Yelp blog has some additional factual detail about the companies and circumstances.) It’s not clear if these contracts have just been in use for years (pre-dating the CRFA) or whether the companies got bad legal advice.

Must notify all their customers. Each of these firms must now notify all consumers who signed their agreements that the contractual provisions in question are not enforceable. There are other multi-year reporting and compliance requirements that the FTC orders impose as well.

In addition, Shore to Please Vacations apparently sued a vacation renter, who had written a negative review, in Florida civil court. It must now dismiss the private lawsuit for breach of contract.

Why we should care. Any marketer, brand or business owner contemplating any scheme to prevent or preempt negative reviews needs to stop thinking this way immediately. These efforts invariably backfire and cause more damage to the business’ reputation than anything contemplated by the non-disparagement clause.

Marketers need to follow review best practices and treat reviews and responding to them as just an ordinary part of doing business. It’s also important to remember that businesses that have some critical reviews ultimately have more credibility than those with only five star reviews.