Businesses can face penalties even for well-intentioned contract terms. As consumer review protections expand nationwide, even well-intentioned and passive contractual language can unknowingly land businesses on the wrong side of a lawsuit.
Nearly a decade ago, California became the first state in the nation to prohibit the use of non-disparagement clauses designed to silence consumer reviews. Enacted in September 2014, California Civil Code § 1670.8, the “Yelp Law,” reflects a clear public policy choice: consumers may not be contractually barred from sharing honest opinions (positive or negative) about businesses and their products or services.
Section 1670.8 prohibits businesses from including provisions in consumer contracts, or proposed consumer contracts, that require individuals to waive their right to make statements about the business, its employees or agents, or the goods or services offered.
A Broader National Trend
While not necessarily the cleanest statutory approach, California’s approach is not a complete outlier. At the federal level, the Consumer Review Fairness Act of 2016 (CRFA) renders void and unenforceable any contractual provision that restricts a consumer’s ability to post honest reviews or imposes penalties for doing so. The CRFA also prohibits businesses from threatening enforcement of such provisions.
Several states have adopted similar protections. Illinois (815 ILCS 505/2UUU) and Maryland (Md. Com. Law § 14-1325), for example, expressly prohibit non-disparagement clauses in consumer contracts, declaring that any waiver of the right to make statements about a business or its goods or services is contrary to public policy and unenforceable. Like California law, these statutes protect consumers from civil penalties and retaliatory measures.
California Civil Code § 1670.8 (“The Yelp Law”)
Section 1670.8 establishes two core protections for consumers:
1. Consumer Speech Protections
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, their employees or agents, or the goods or services offered. This provision aligns closely with the CRFA and similar state statutes, reinforcing that consumers cannot contract away their right to post honest reviews.
2. Prohibition on Enforcement or Threats with Steep Consequences
Businesses are prohibited from threatening to enforce, seeking to enforce, or otherwise penalizing a consumer for making a statement protected under the statute.
Violations carry significant civil penalties: up to $2,500 for a first violation, $5,000 for each subsequent violation, and up to $10,000 for willful, intentional, or reckless violations. Importantly, these penalties apply on a per-violation basis, meaning multiple consumer complaints can quickly result in substantial financial exposure.
Practical Implications for Brands
Given the expanding regulatory landscape, businesses should take proactive steps to ensure compliance:
1. Audit All Consumer-Facing Agreements
Brands should audit all consumer-facing documents, including Terms of Service, online terms and conditions, warranty agreements, promotional offers, and standard form contracts. Particular attention should be paid to:
- Non-disparagement clauses
- Broad confidentiality provisions
- Arbitration clauses that restrict discussion of disputes or proceedings
2. Remove or Revise Prohibited Language
Any language that could reasonably be interpreted as penalizing consumers for negative reviews, even impliedly, should be removed or narrowly tailored to comply with Section 1670.8 and comparable federal and state laws.
3. Implement Internal Review Workflows
Internal compliance procedures can help ensure that new agreements and marketing initiatives do not inadvertently include unenforceable gag provisions. Regular reviews of existing contracts are especially important for brands operating at scale or across multiple jurisdictions.
4. Refine Arbitration and Confidentiality Provisions
There appears to be some tension between confidentiality requirements and statutory protections for consumer speech. While courts have not categorically invalidated arbitration confidentiality clauses, poorly drafted provisions may invite claims that they unlawfully restrict public commentary.
5. Verify Compliance Across Relevant States
Brands operating nationally must consider not only California law but also federal protections under the CRFA and comparable statutes in states such as Illinois and Maryland. Although enforcement mechanisms and penalties vary, the underlying principle is consistent: contracts may not restrict honest consumer reviews.
Key Takeaways for Businesses
- Legal Exposure: Non-disparagement clauses are unenforceable in consumer contracts, and attempting to enforce them exposes brands to civil liability and reputational harm.
- Reputational Damage: honest consumer reviews are legally protected, and any contractual attempt to silence consumers is void as a matter of public policy.
- Businesses Benefit From Proactive Review and Compliance: businesses should regularly audit agreements and online terms to identify and eliminate problematic provisions as enforcement actions and class litigation continue to evolve, requiring brands to ensure that consumer-facing documents remain current and compliant.
With California leading the way, federal law setting a national baseline, and additional states adopting similar protections, businesses must proactively review and update consumer-facing agreements to avoid legal exposure and reputational harm. For questions regarding how these laws apply to your contracts, Terms of Service, or arbitration provisions, or for assistance auditing and revising consumer agreements, please contact KJK attorneys TJ Hunt (TJH@kjk.com) or Kyle Stroup (KDS@kjk.com), or another attorney within KJK’s eCommerce practice group.