Better Business Bureau takes a look at how non-disparagement clauses in consumer contracts can hurt customers
Most consumers don’t read the fine print on everything they sign. We all know that we should carefully read the terms and conditions of every agreement and every line of every contract, but we don’t. It’s easier to jot down a signature or click “accept.”
By doing this, consumers could be signing away the right to complain and not even know it, thanks to the rising use of non-disparagement clauses in contracts.
Such is the case for one Texas couple out of Plano. An article written by CBS 11 DFW said the Plano couple posted a negative review on Yelp about a Dallas business called Prestigious Pets. The business sued claiming the review violated a non-disparagement clause in their contract and are seeking up to $1 million in damages.
Prestigious Pet’s page on Yelp shows a “Consumer Alert: Questionable Legal Threats” message that warns consumers the business has sued a reviewer.
Non-disparagement clauses are sometimes used in contracts between consumers and businesses, and the use of these clauses is on the rise, according to Professor Emeritus Richard Alderman, who serves as director of consumer law at the University of Houston Law Center. These prohibit consumers from making negative remarks, truthful or not, about a company through a public medium like Yelp, Google review or a BBB review. If you break the clause, you could be sued for hundreds or thousands of dollars by the business.
One consumer, who spoke on the condition of anonymity, said her signature on the dotted line of an application to rent a property would come back to haunt her.
A particular clause in the application denied her the ability to write an honest review of how the company was treating her. Not only had she never heard of the clause, she didn’t even notice it when she signed. The clause said she was “prohibited from making disparaging remarks/statements or publications regarding the other to any third party” by posting on any review based website.
The consumer we spoke with never knew she had signed the clause until after she filed a complaint with BBB.
“I really didn’t even pay attention to it to be honest with you,” the consumer said. “It was in the application I had signed so I could rent the property out. The application said it could look up my credit, that the fee was non-refundable, and then the non-disparagement clause was in it, too,” she said.
After filing the complaint, the consumer said she received a demand of removal letter from the business. The document stated the complaint fell under their agreed non-disparagement clause. If the consumer did not take down the complaint, the business would get their lawyers involved.
“We eventually just settled on the issue and we didn’t want to go to court,” the consumer said.
However, the threat of losing hundreds of dollars scared the consumer enough to rethink how she looks at anything she signs.
“I do feel there would be more negative reviews on this business if they didn’t have the clause and am not surprised (the owner) does it,” the consumer said.
According to Professor Alderman, non-disparagement clauses began to appear in consumer contracts with the increase of websites that allow reviews of businesses.
He said businesses use the clauses as a sort of protection against consumers who lie about the service that company has given. They appear in a variety of contracts including professional service and property agreements, but Alderman said they are not limited to a specific industry. What the clause essentially does is silence consumers even when what they said is truthful, Alderman said.
“From a consumer stand point, there is still a problem,” Alderman said. “The threat that if you don’t take this down you would owe me $50,000 has a tendency to work.”
Currently, there is no law in Texas that prohibits businesses from using non-disparagement clauses in contracts. Only California has banned businesses from placing non-disparagement clauses in consumer contracts.
BBB contacted the Texas Attorney General’s Office to see if any official legal opinion has been issued. According to a spokesperson, none have been issued or requested. The AG’s office did say they encourage consumers to review contracts carefully and to submit a complaint to the agency if a consumer feels they have been misled.
The Federal Trade Commission made a stand against non-disparagement clauses after they sued Roca Labs Inc. in 2015 for including the clauses in their contracts. The federal agency said in a press release that the clauses harmed consumers by barring them from making truthful statements about the company’s product.
So what happens if you sign a contract or agreement with a non-disparagement clause? Not much, according to Alderman. You can sue the company; however, he said you have to factor in if you can win the lawsuit and if you want to get into one. Alderman also said first amendment protections would not apply to the clause because the dispute involves private parties, not a government impeding speech.
There is a possibility that a federal law could be passed restricting the use of non-disparagement clauses.
The U.S. Senate passed the Consumer Review Freedom Act in December of 2015. The bill would prohibit the use of certain clauses in form contracts that restrict the ability of a consumer to communicate regarding the goods or services offered. Additionally, the bill would protect the right of consumers to express truthful criticism.
“Reviews offering blunt and honest criticism play an increasingly important role in helping customers select the best products and services,” said Republican Sen. John Thune of South Dakota, who sponsored the bill. “If consumers no longer trust reviews because of strong-arm policies, a key benefit of the system is gone.”
Thune told BBB he believes consumers should benefit from the experiences of other customers. While he understands the concerns businesses have about maintaining their reputations, there are examples of abuse that harm consumers and competing businesses, he said.
The legislation would ensure the practice of putting non-disparagement clauses in consumer contracts doesn’t become common place, Thune said.
“Consumers will be able to breathe a little easier when writing a critical review without worrying that a provision could be tucked into the fine print of a form contract.”
The next step is for the U.S. House of Representatives to consider the bill. Thune said the legislation is a priority for him.
The U.S. House passed a similar bill called the Consumer Review Fairness Act on Sept. 12. Congressman Leonard Lance is sponsoring the bill.
BBB accredited businesses are not allowed to use non-disparagement clauses, which are not compatible with BBB’s Standards for Trust.
“BBB believes that customer opinions, whether positive or negative, can be valuable information both for businesses and for their future customers,” said Vice President Richard Woods, general counsel and corporate secretary for the Council of Better Business Bureaus. “We discourage using these clauses to stifle expression as contrary to BBB’s vision of an ethical marketplace where buyers and sellers trust each other.”
BBB does inform consumers of businesses that use these clauses by disclosing the information on their BBB Business Review page.
So, what can a consumer do to protect themselves?
BBB offers these tips:
- Read your contract. What can end up hurting a consumer is not fully understanding or reviewing a contract. The clauses are sometimes stuck in long contracts or in online contracts that require you to accept what the document entails. Ask the business if there are any clauses that would limit your ability to truthfully give your opinion. Don’t forget to completely read the contract as well.
- Ask questions. Ask the business why the clause is in the contract. Make sure you understand what happens if you break the clause or if you can back out of the contract if you feel uncomfortable a couple days after signing it.
- Negotiate with the business. Try to see if the clause can be removed. Seeking legal advice about the contract can ensure everything is done properly.
- Walk away. Alderman said if a business has a non-disparagement clause in their contract, you may want to rethink doing business with the company. You always have a choice. The clause may indicate the company is worried about a consumer saying something truthful about their services or business practices. Decide whether the clause is something you are comfortable with signing. If not, choose another company who can offer the same service.