What You Need to Know About the Consumer Fairness Act of 2016
With the advent of negative online reviews, many businesses have sought to protect themselves by including non-disparagement provisions into their form contracts with consumers. These provisions make sense when fairly negotiated – if you want to do business with us, you will agree to resolve any complaints with us privately and not disparage us online. However, in many instances, consumers had no idea they were agreeing to these terms because they didn’t take the time to read the contract.
In late 2016, President Obama signed into law the “Consumer Review Fairness Act of 2016” to change the legal landscape regarding these non-disparagement provisions. Businesses that have employed or contemplated employing using such non-disparagement provisions need to learn the requirements of this new law or risk legal liability or penalties.
Here is what you need to know:
First, the Consumer Review Fairness Act renders any non-disparagement provision in any “form contract” unenforceable as of March 14, 2017. Thus, if you have one of these provisions in one of your contracts with consumers, that was entered into on March 14, 2017 or later, the non-disparagement provision is void and unenforceable in a court of law.
Second, a “form contract” is defined by the Act as “a contract with standardized terms – (i) used by a person in the course of selling or leasing the person’s goods or services, and (ii) imposed on an individual without a meaningful opportunity for such individual to negotiate the standardized terms.” “Form contracts” do not include employment or independent contractor agreements. What is important here is the opportunity for the consumer to negotiate the non-disparagement provision. If the contract is presented to the consumer in an on-line form, then the contract likely constitutes a form contract and is covered by the Act. However, if the contract is presented to the consumer by human representative of the company, the non-disparagement provision is identified to the consumer and the consumer specifically agrees that they had full opportunity to negotiate the terms of that provision, then arguably such non-disparagement provisions will not run afoul of the Act.
Third, since the Act only applies to contracts used in the course of selling or leasing goods or services, nothing prevents you from including a non-disparagement provision in a refund agreement. I can’t tell you how many times that I, as an Internet attorney, have had clients come to me who had a dispute with a customer and tried to do right by their customer by refunding their money in full, and then the customer bashed them online. If you are going to refund a customer’s money, there is nothing wrong with getting their agreement not to disparage you online.
Fourth, beginning December 14, 2017, including those non-disparagement provisions in form contracts with consumers becomes actionable by the Federal Trade Commission and States attorneys general as an unfair or deceptive act or practice. So even if none of your customers wanted to publicly complain about your products or services, you can still find yourself in legal trouble with the FTC.
Make sure you consult with an attorney familiar with the specific requirements of the Consumer Review Fairness Act of 2016 to ensure your business complies with all of the Act’s requirements.