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Consumer Non-disparagement Clauses Nixed in California

Yelp logo, symbolizing prohibition of consumer non-disparagement clauses under California lawEarlier this month, Governor Brown approved California Assembly Bill No. 2365. This bill added Civil Code Section 1670.8, which prohibits non-disparagement clauses in consumer contracts.

Statute Prohibits Non-disparagement Clauses

Core protections are set forth in Subsection (a) of that statute.

(1) 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.
(2) It shall be 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

Subsection (b) states that any waiver of the Section’s provisions is void and unenforceable.

Subsection (c) permits a civil penalty of up to $2,500 for the first violation, and up to $5,000 for a subsequent violation. Suit may be brought by the consumer, the California Attorney General, or the district attorney or the city attorney where the violation occurred.

Subsection (d) states that in the event of a willful, intentional, or reckless violation, a civil penalty of up to $10,000 is permitted.

Fear of Consumer-review Sites

As consumer-review sites such as Yelp became more prevalent, some companies became concerned about negative reviews. They added non-disparagement clauses to their contracts. California’s legislature and governor decided that such clauses are not in the best interests of the state and its residents. I agree with this decision.

The statute’s prohibition of non-disparagement clauses has limits.

  • It applies only to consumer contracts or proposed contracts. Contracts between companies are not affected.
  • It applies only to the sale or lease of goods or services. So, if a company and a consumer were to enter into an agreement to settle a dispute, that agreement could include a non-disparagement provision.

in summary, if you provide goods or services to consumers in California, make sure that any contract you provide does not include a non-disparagement clause.

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Dana H. Shultz, Attorney at Law  +1 510-547-0545  dana [at] danashultz [dot] com
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