Are Consumers Losing Their Voice In Strategically Placed Contractual Gag Orders?
If you happen follow our periodic blog, you’ll likely know The Carrington Firm very recently relocated to St. Louis, Missouri. As such, we encountered all of the normal headaches and hiccups involved with relocation; expenses related to moving, setting up utilities, signing leases, ordering new business cards, etc. But in our signing of a new office space lease, I encountered a provision with regard to our use of the unit – or more directly, a restriction in our expression of our opinion of our use of the unit:
“19. Prohibited Conduct. You and your occupants or guests may not engage in…injuring our reputation by making bad faith allegations against us to others.”
At first this restriction may seem in the general best interests of the business we are doing business with, however; at the essence of the restriction is two things that didn’t sit well: i) an prior restraint; and ii) a blanket restriction on our ability to say anything other than positive sentiments about our experiences before, during and after the tenancy.
Some legal minds may look at the restriction, and assume that the foregoing statement is overly broad in relation to the intention of the restriction. However, according to The Missouri Supreme Court, “Bad faith is a state of mind, indicated by acts and circumstances, and is provable has laid out bad faith in the following way by circumstantial as well as direct evidence.”[i] [ii] Bad faith is a liability derived in the contract principle of good faith and fair dealing, and is a law that tests one party’s conduct with regard to the other. In most cases nowadays, we see the issue of bad faith dealing being relevant in insurance claims; but as mentioned above, our instance of signing and entering an office space agreement is surely not dealing with insurance at all, but rather is a restriction upon our ability to discuss issues we may have with regard to our tenancy under the very vague term of “bad faith”.
So what recourse in contract does that leave us with in terms of knowing what is, but more importantly, what is not acceptable in our “making…allegations against” the landlord? Honestly, I couldn’t tell you, the language is very ambiguous, and overly broad, and while its labeled “prohibited conduct”, this provision amounts to nothing more than a non-disparagement clause.
Our noticing this provision in a landlord / tenant agreement is not an isolated occurrence by any means. The very nature of business, regulation and restriction and expression is changing and subject to steady evolution. Often times, these changes are taking place in the realm of providing additional protections to consumers and employees, with big business often and historically having owned much of the bargaining power. Non-disparagement classes are exceptionally prevalent in employment contracts and more pressingly in employee severance agreements, but the EEOC and many government agencies have increasingly voiced concerns as to whether these clauses have gone too far by illegally prohibiting employees, current and former, from filing legitimate, but “disparaging” claims with those agencies.[iii] Private businesses’ ability to restrict the words, actions, feelings, and reviews of employees and customers is also feeling the strain in recent cases that are slowly making their way up the appeals chain, likely soon to be as far as the United States Supreme Court.
Without going into a complete Contracts 101 course, suffice to say that companies have implemented these terms and conditions, generally with some sort of acknowledgement at the end of the document, so that customers cannot later claim they did not receive notice of the terms – regardless as to whether the customer actually read the words or just scrolled to get where they wanted to go. Years ago, when I was young and naïve in my professional impressionability, I was tasked with drafting the terms and conditions for a recent release of SaaS based software for a company I was working for. My direct supervisor, an attorney not much older than I, but clearly much less ethical, instructed that I purposefully fill the lines of the document with as much filler and repetitive sections as possible to discourage customers, opposing counsel, and anyone else for that matter from actually reading the document, because as he put it “...you know no one likes to read”.
Notwithstanding other terms in most contracts, in this piece we’ll examine how courts are looking at the ability of companies to restrict future language, opinions or expressions of customers and employees through the implementation of non-disparagement clauses in contract. So foremost, what is a non-disparagement clause?
In general, it is a clause that acts to restrict an individual from taking any action that negatively impacts an organization, its reputation, products, services, management or employees.[iv] As the Oxford English Dictionary reflects, the word disparage means “[to] bring discredit or reproach upon; to dishonor, discredit; to lower in credit or esteem.” The most public instance of this was the issue that oft-controversial celebrity Charlie Sheen faced after his very publicly placed words regarding the show “Two and a Half Men” and its creator Chuck Lore.[v]
In many contract instances, these clauses will resemble something of the sort, if not the one we encountered buried in another section:
“Non-Disparagement. [During the Term and thereafter,] [Customer / Employee] agrees to take no action which is intended, or would reasonably be expected, to harm the Company or its or their reputation or which would reasonably be expected to lead to unwanted or unfavorable publicity to the Company.”[vi]
With the overly vague nature of this clause as written above, as well as the fact that often times customers will scroll right past, or employees eager for employment will ignore and sign the attached document; what implications have courts assigned to these clauses and their enforceability? Well, you may be surprised to know that historically, these clauses have been enforced by a vast majority of state and federal courts; proving two (2) primary things: (i) it’s true, people really don’t like to read; and (ii) to prove that you have disparaged someone is no where near as hard as you might be inclined to believe.
But what effect does this have on the larger society and economy? In the Internet age, there have been numerous businesses that have popped up making their revenue on the basis of what are supposed to be honest, and straightforward reviews of companies, persons or available services. This issue of review and expression restriction has taken such root that companies such as Yelp, TripAdvisor, and even Amazon have begun to take notice. TripAdvisor’s Sr. VP of Global Product, Adam Medros, had the ability to address federal lawmakers on the issue and advocate for a federal ban on these exact clauses; echoing that these clauses work to chill free speech by “placing a muzzle on one’s customers with contractual boilerplate goes against everything [we] stand for at TripAdvisor”.
While the issue raised by Medros is valid and of great concern, the contractual obligations placed on consumers by these virtual gag orders is being done by brands to better manage their own reputations. But the downside comes as such, what happens in the instance that a customer leaves a critical review that is entirely accurate – especially in the face of ambiguous language such as “bad faith”? What happens is addressed further by Medros, “[when] a business includes a gag order…everyone is harmed. The consumer is improperly censored. The consuming public at-large is less informed that it otherwise would be about the quality of service – or lack thereof – at a given business. Even the business doing the silencing is harmed, as it loses the opportunity to learn from the experiences of its customers.”[vii]
In September of 2014, California became the first state in the U.S to ban non-disparagement clauses, with fines up to $10,000 for repeated violations. But now there is a push in Congress to push this ban to a federal level. Rep. Darrell Issa (R-CA), Rep. Eric Swalwell (D-CA), Rep. Blake Farenthold (R-TX), and Rep. Brad Sherman (D-CA) have jointly proposed the Consumer Review Freedom Act of 2015, which would ban non-disparagement clauses nationwide.[viii] The bill as proposed would ban a business from imposing a clause requiring consumers to sign away intellectual property rights in communications about the business, and permits enforcement by the Justice Department and State Attorney’s General. If passed and signed into law, the law would include fines that could add up quickly and exponentially, stating in pertinent part: “The Attorney General shall bring an action against any business who violates subsection (d) for a civil penalty of not more than $16,000 for each day that the business so requires the use of such a contract by a distinct person.”[ix]
But this issue isn’t being addressed or reviewed in the solitude of the House of Representatives, Sen. John Thune (R-SD) is being joined by Sen. Jerry Moran (R-KS), Sen. Claire McCaskill (D-MO), Sen. Brian Schatz (D-HI), and Sen. Richard Blumenthal (D-CT) in presenting a Senate version of the Consumer Review Freedom Act that would provide the Federal Trade Commission with the power to go after companies using these clauses. Chair of the Senate Commerce Committee, Sen. Thune, had this to say in relation to the restrictions placed on consumers, “A core tenant of the internet is the ability to freely share information with whomever you like…what good is information if it’s been sanitized to remove truthful criticism?”
Sen. Bill Nelson (D-FL) has noted that these gag clauses have the same stifling effect on consumers as forced-arbitration clauses; the ability to provide provisions that take away a consumer’s right to sue, and ultimately are removing a potentially wronged consumer’s Constitutionally protected right to seek some sort of redress.[x] “These non-disparagement and arbitration clauses are just another way for companies to avoid accountability by silencing consumers…whether by preventing them from posting on online complaint or telling their story to a jury.”
We wont touch to the nature of forced arbitration clauses in this piece, but they have routinely been upheld by the United States Supreme Court; but in the inverse, though there hasn’t been a ton of litigation on the matter as of yet, there are two (2) cases in particular that have relatively recently made their way through the courts and have taken this issue of non-disparagement to a public level: Palmer v. Kleargear, and Lee v. Makhnevich & Aster Dental.[xi]
While its easy to recognize that businesses have a strong incentive to stifle negative commentary and reviews in the public sphere, according to the President of the Information Technology & Innovation Foundation, Robert Atkinson, evidence shows that when a business responds affirmatively to a negative review, rather than attempting to bury or ignore it, the affirmative response usually has a net positive result for the business. According to Atkinson, “[when] consumers review something they’ve bouth, other consumers benefit from their experience and can take their feedback into consideration when they shop. Companies can use that market data to improve their products or services – and then, when they improve poorly reviewed features or add new ones, consumers can provide new reviews. Limiting these reviews to only positive feedback significantly reduces the benefits of this process.”[xii]
Consumer Affairs advises something different which, while taking a bit more time and research, is actually a good bit of advice. They suggest, if the business you are considering has a mixture of good, so-so, and bad reviews, it’s actually a good sign. In general, that is a sign not only that the reviews are legitimate, but more importantly, the business does not go about harassing and hounding its former customers that dare to utter a discouraging word regarding the product or service.[xiii] At the end of the day, if a product or service provider is so worried about a negative review that they wont stand by their work, then as a consumer, you probably should be pretty concerned about using them.[xiv]
Since a heavy part of our firm’s practice has been commercial transactions and advising small businesses in their dealings, I’d be remiss if there wasn’t business related advice presented here as well. So what is a business to do in order to protect not only their reputation while, more specifically, permitting a consumer to leave an honest review devoid of malicious intent?
First, a provision at the end of any related clause acknowledging that the provision is a material term of the agreement, that without, the company would otherwise refuse to enter into the agreement.
Second, this one actually comes in three (3) parts regarding a more appropriate drafting of the provision itself: i) a definitive statement as to who the clause is applicable to, in the interest of an employment situation, ensuring that the clause is not open-ended, in a consumer situation, likely referencing that the clause is applicable to the direct consumer of the product or service; ii) a definitive statement as to what exactly a “disparaging,” “negative,” or in our case, “bad faith” comment is to leave little to no room for doubt; and iii) incorporation of a “loser-pays” clause to the provision, as if the losing party has to pay the other’s reasonable attorney’s fees and litigation costs incurred surely will make any reasonable party contemplate whether the potential action is worth the effort.
The three (3) drafting tips noted above are each for good reason, and likely will not only beef up the provision one is trying to protect against, but also assure the enforceability even in light of the cases pending before the courts on this very issue. Now, while the proposed amendment to the federal law wouldn’t protect a business from violation and fine, even with an amazingly written provision; until such is passed, its probably a great idea to review and revamp your contractual provisions, to ensure that there is no ambiguity or chance of ending up on the losing end of litigation.
Our firm has worked with numerous businesses and consumers over the years to ensure compliance with current law and regulation. As non-disparagement is a possibly soon to be changing area of the law, we’d love to review and advise your interests as well.
Contact our professionals for an in-depth review of relevant provisions and law that could have adverse affects.