Online Reviewers Get New Protections

By: Michelle Cohen

Your business booked a large charity event.  However, the customer contact turns out to be a nightmare. She complains (during and after the event) that the service was slow, the food looked and tasted like a frozen meal, and the drinks were watered down.  She even claims she was overcharged.  You reviewed the situation and, while you disagree, you offer her a credit.  She declines and instead decides to post scathing reviews on Yelp, TripAdvisor, and several other review sites.  She also gets her friends to post similar reviews.  You remember, however, that the booking contract this irate customer signed barred her from posting negative reviews and imposes a $200 per negative review penalty.  You ring up your attorney and ask her to send Ms. Nasty Customer a demand.  Your lawyer tells you there may be a problem with this approach – under a new law signed by President Obama in December, the Consumer Review Fairness Act of 2016 – form contracts restricting reviews or imposing penalties are void.

Congress sought to address situations where businesses threaten or file lawsuits against customers who post negative reviews, relying upon form contracts or website terms of use. In one case involving the Union Street Guest House in New York, the venue reportedly threatened a wedding party with $500 in fines for each bad review wedding guests submitted on Yelp, based upon the venue’s posted policy. The Guest House initially sought to keep part of the wedding party’s deposit.  (The business subsequently faced a barrage of bad press once word of its policy went viral.  It has since closed).  In another situation, a company called KlearGear sought a $3,500 “disparagement fee” based upon a Utah couple’s online review from years before. KlearGear argued the non-disparagement clause was in its standard terms (a fact disputed by the couple).  KlearGear eventually sent the alleged debt into collections, causing havoc to the couple’s credit score.  The couple sued KlearGear and obtained a six-figure default judgement.

What’s Prohibited

The new protections in the Consumer Review Fairness Act bar form contracts (including website terms of use) that prohibit or restrict an individual who is a party to that contract from engaging in a “covered communication”  – a review or assessment of the goods, services or conduct of a person who is also a party to that form contract.  The Act also prohibits form contracts that impose a penalty (such as withholding a security deposit) or fee against an individual who posts a review.  The law further proscribes form contracts that transfer or require individuals to transfer intellectual property rights in their reviews.  Some companies invoked the Digital Millennium Copyright Act to force review sites to “take down” negative reviews, claiming intellectual property of customer reviews. The Consumer Review Fairness Act makes it unlawful for a person to offer a form contract that contains any of these prohibited terms.

Exceptions and Carve-Outs

There are several significant exceptions to the new law, offering some protections to organizations. First, individually-negotiated agreements are not covered by the new legislation. Second, Congress carved out employer-employee and independent contractor agreements from the “form contract” definition. Thus, under the new Act, employment provisions barring negative online reviews of an employer are not void.  However, the National Labor Relations Board strongly disfavors restrictions on employees’ rights to discuss wages and working conditions in public forum. Further, some states may also seek to bar restrictions on online reviews. California and Maryland already have enacted laws barring non-disparagement clauses in consumer contracts.

Third, the Act does not bar an organization or individual from suing for defamation, libel, or slander.  Thus, companies may still file suit for reviews containing false statements (and presumably include a clause in a form agreement or terms and conditions addressing such statements).  Fourth, the law preserves any confidentiality required by law – such as HIPPA.  Fifth, the Act expressly allows a party to remove or to refuse to display on a website/webpage operated by that party the content of a “covered communication” :  (1) that contains personal information or the likeness of another person; (2) is libelous, harassing, abusive, obscene, vulgar, sexually explicit “or is inappropriate with respect to race, gender, sexuality, ethnicity or other “intrinsic characteristic”; or (3) that is false or misleading.  Thus, companies that host their own webpages for customer comments and interactions may remove customer reviews meeting these standards. It would also appear lawful to advise customers in company terms and conditions or form contracts that such content may be reviewed.

Congress further created a carve-out from the Act’s consumer review protections for trade secrets or commercial or financial information considered privileged or confidential, personnel and medical files where disclosure would result in an invasion of personal privacy, records compiled for law enforcement purposes, content that is unlawful, and content containing computer viruses, worms, or other damaging code.

Federal Trade Commission Enforcement

The Federal Trade Commission (“FTC”) will enforce the Consumer Review Fairness Act of 2016.  State Attorney Generals may also bring a civil action in federal court to obtain relief for their residents. The new law requires the FTC (within 60 days) to conduct education and outreach to businesses, including non-binding “best practices” for complying with the Act.  Companies get 90 days (until March 14, 2017) before their contracts containing the now-proscribed practices are considered void.

What’s Next?

The Consumer Review Fairness Act of 2016 will further empower individual reviewers and review sites. While the FTC will release compliance guidance, companies should review any restrictions on reviews in their form contracts and terms of use.  When dealing with negative reviews (for instance, through direct consumer communications or replies on a message board), organizations should be careful about their wording to avoid future claims of adverse actions based upon that review.

The FTC may target a few “brand name” organizations in early enforcement actions to garner industry attention. Companies should be aware, however, that they retain the right to object to assessments that are exempted, including those that disclose confidential or personal information, or that are defamatory, misleading, obscene, vulgar, or unrelated to the products and services offered on the company’s webpage.  So, while consumers cannot be penalized through a form contract by posting reviews, their rights to post are not unfettered.  Contrary to the popular adage, as the Union Street Guest House learned, not all press is good press – and companies may still address false or defamatory reviews and those reviews containing other exempted content.