Then say it online in California.
On September 9, California governor Jerry Brown signed a new law that prohibits businesses from having customers sign agreements to not post disparaging online reviews. The new law prohibits a contract for the sale or lease of consumer goods or services from containing a waiver of the consumer’s right to make any statement about the seller, its employees or agents, or the goods or services. The law also prohibits the seller from threatening or trying to enforce a provision that the new law makes illegal, or to otherwise penalize a consumer for making any statement protected under the new law.
Not only is any such waiver void and unenforceable, if a business violates the new law it will be subject to civil penalties of up to $2,500 for the first violation, and $5,000 for each additional violation. The attorney general, a district or city attorney, or the consumer can sue to collect the civil penalty. A willful, intentional, or reckless violation can bring an additional penalty of up to $10,000.
Also, the law does not prohibit or limit a person or business that hosts online consumer reviews or comments from removing a statement that is otherwise lawful to remove.
This new law is the first of its kind in the US, but it is quite likely that other states will follow California’s lead, given recent attempts by businesses to punish consumers for negative online reviews. For example, over the summer the New York Post reported that a hotel in Hudson, New York, the Union Street Guest House, was fining wedding guests $500 for posting bad online reviews. The hotel posted its policy on its website, and the backlash on Yelp was rather epic. Yelpers pummeled the hotel with 1-star reviews, by noon of the day the story broke, hundreds of new 1-star reviews had been posted.
One could argue that the hotel case demonstrates that no legal remedies are necessary. The hotel had a dumb idea, and the marketplace responded with a well-deserved thrashing. Imposing civil fines would probably be unnecessary, as the hotel should have learned its lesson. On the other hand, some legal remedy might be necessary if the hotel had actually tried to deduct $500 from any online poster’s wedding deposit.
Another case occurred in Utah, also with devastating results for the business. A couple posted a negative review on Ripoff Report about an online retailer, KlearGear, in violation of KlearGear’s “policy.” When the couple refused to pay a $3,500 nondisparagement fee, KlearGear filed a negative credit report against them. The couple fought back by filing a lawsuit, and the court ordered the hapless KlearGear to pay damages in the amount of $306,750.
So what are the lessons for business owners? First, if you are a California-based business or have California customers, don’t ask or require your customers to waive their right to post online reviews, and don’t try to penalize them if they do. Keep in mind that for now, at least, the California law only applies to business-to-consumer transactions, not business-to-business. Also, the California law doesn’t specify whether the consumer must be in California, the business must be in California, or both. Because the law is so new, courts have not had a full opportunity to define the scope of the law’s coverage. Businesses that are located outside of California but who sell to consumers in California may still be subject to the law.
Another lesson is that businesses have to find more intelligent ways to deal with negative online reviews. Nobody is perfect, and every business at some point or another is going to have an unhappy customer. When that customer posts a negative online review, businesses that try to punish or argue with the customer are going to look bad, and news of these incidents has a way of spreading like a bad virus. This can result in a massive loss of business, but also may result in a large civil judgment, as we saw with the KlearGear case.
Instead, a business that receives a negative review has to look at the incident as an opportunity. It’s an opportunity to try to fix the problem and convert an unhappy customer into a happy customer. Businesses can respond to reviews on Yelp, for example. Instead of lashing out, a business should apologize for the shortcoming, and offer to fix it. Even if the customer never responds, the business is now on record as being proactive in trying to remedy the situation. In addition, without the negative review, the business might have no way of knowing that it was letting customers down in some way. The negative review gives the business a chance to reexamine its processes, products and services, and make necessary improvements.
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