An outcry has lately arisen over consumer contracts that purport to ban disparagement of the company that proffered the contract or its products, especially since a few such companies, seeking to silence customers vocally dissatisfied with products or services, have proceeded to sue them, threaten them with suit, or report them as credit risks. Although it is doubtful that existing law in fact permits practices of this sort, California proceeded to pass a new law protecting consumers from retaliation by companies they criticize — a law that appears to go much farther than just banning the practices that stirred the furor. [Volokh] Contra: Scott Michelman, CL&P.
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“Did California just make it illegal for businesses to stop dealing with customers who insult them?”
I’m pretty sure the answer is no. Or, at least, not unless the business has a contract stating that the customer can’t insult them, in which case they’re getting some karmic backlash. Here’s the relevant part of the law (emphasis mine):
“(a) (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 2 only covers stuff prohibited “under this section”, and subsection 1 only covers contract provisions. (There are more subsections but they’re irrelevant here.) So any company who doesn’t try to make their customers sign a speech-restricting contract is fine. I’d say the ones that DO try to make such a contract get what they deserve – but even then, it would be a stretch to say that a libelous statement is “protected under this section”.
IANAL, but wouldn’t (a) (1) also apply to implied contracts?
Stewart, I don’t think you can have an “implied contract” with a nondisparagement clause. How would that even work? You can have implied contracts, sure, but how would you determine that someone made an “implied contract” with an illegal provision restricting the customer’s right to talk about the seller or product?
The closest thing I can think of is maybe a contractor who works for cash “off the books” might think that it’s implied that the customer not report him to the IRS, or maybe a drug dealer might think it’s implied that the buyer not publicly post the transaction on Facebook. But in those cases the seller’s actions are illegal even without this law, and any attempted “enforcement” of those implied clauses would not likely be in court.
I think the section could as reasonably be read to forbid penalizing anyone for “any statement regarding the seller ….” Subsection (1) forbids contractual clause restricting the right to make statements about the business. Subsection (2) refers to “any statement protected by this section.” As subsection (1) protects the right to make any statements concerning the business from contractual restrictions, any statements concerning the business are protected under this section. The court might interpret it to impose the limitation discussed, but I don’t believe the language of the statute compels it.
While Mr. Michelman touts the greatness of the bill and Mr. Volokh sets up hypotheticals which may illustrate a problem. the real question has to be “does this bill add anything new to laws that wasn’t there before?”
If the contract is to provide a widget that does a specific thing in good working order and in a certain time, and the company does not provide said widget, why is the rest of the contract in effect if the company does not live up to the contract in the first place? There are already libel and slander laws that prevent false writings and statements that may harm people, so what does this bill add to that law?
Furthermore, false reporting to a credit bureau is a civil crime as well. So once again, what does this bill add to the law?
Frankly, the only thing I see is an intervention between contracts between two parties and the government getting the benefit of dollars if the contract if breached.
The government inserting itself into contracts between others has always been a bothersome issue.
I am not sure that we should be celebrating another intrusion into private contracts.
C:
The business could argue in court that a reasonable customer would have been aware of the prevailing practice of non-disparagement, no?
(Either way, they shouldn’t be allowed to file the suit in the first place.)
Gitarcarver, I have no problem with it. Especially when the “contract” is simply non-negotiable terms which may or may not be read, and when the terms are clearly against the public interest. There is literally no situation where it is appropriate for a company to prohibit all of its customers from talking negatively about the company or its product.
I am sure that every company in the world would love to exempt themselves from all liability and prohibit all negative comments. If given the chance, they would. So we don’t give them the chance.
But what if they DO provide the widget but it’s somehow low quality (but not so much that it’s an actual contract breach?) Why should the consumer have to shut up about that?
The bill has several purposes. Clarity for the consumer, who now knows for a fact that the provision is unenforceable so their speech is not stifled by the prospect of a large fine. Clarity for the businesses who were using this, who now know the clause is definitely unenforceable instead of just probably unenforceable. Additional punishment for a business who tries to continue to put such a clause in their contracts (the punishment is specified as being nonexclusive; you can sue for violation of this AND whatever else you could otherwise sue for.) And getting RID of these horrible clauses (companies can be sued for merely having them, even if they don’t actually enforce them.)
Richard: Yeah, now that I think about it, that could be a valid reading. It’s somewhat ambiguous if “protected under this section” refers to “any statement regarding the seller or lessor or its employees or agents, or concerning the goods or services” or “statements made violating a contract provision purporting to waive the consumer’s right to make any such statement.” I really doubt the courts would interpret it the first way (if it’s ambiguous, they should go with the obvious legislative intent) but I guess it’s not impossible.
C: Your interpretation doesn’t make any sense.
1 says: “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.”
So the statements it protects are those “regarding the seller or lessor or its employees or agents, or concerning the goods or services”. It protects them by preventing a contract from waiving the right to make them.
Then 2 says: “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.”
So that means a company can’t penalize a consumer for making any statement protected under section 1. The statements protected under 1 are, again, those “regarding the seller or lessor or its employees or agents, or concerning the goods or services”.
So combined, section 1 protects statements “regarding the seller or lessor or its employees or agents, or concerning the goods or services” by prohibiting contracts from waiving the right to make them and section 2 additionally protects those same statements by prohibiting companies from penalizing consumers who make them.