It May Soon Become Illegal To Penalize Customers for Negative Reviews
Nasir Pasha & Matt Staub

It May Soon Become Illegal To Penalize Customers for Negative Reviews [e185]

The guys kick off the week by discussing the newly introduced Federal law that would make it illegal for businesses to fine customers for leaving negative reviews.

Transcript:

NASIR: Okaaay. Uh, okay. I was trying to start goofy. Okay. All right. Welcome to our podcast where we cover business in the news and add our legal twist. My name is Nasir Pasha.
MATT: And I’m Matt Staub.
NASIR: And this is Legally Sound Smart Business, the podcast. What do you think about that?
MATT: Sounds the same as the previous 184 episodes but, you know, it’s fine – fine with me.
NASIR: Yeah, it’s cool. I’m excited.
MATT: What a great fight that was two days ago.
NASIR: Well… So, I haven’t seen it yet and I don’t know. Are you planning on going somewhere and watching it or ordering it?
MATT: No, I’m not.
NASIR: I like watching UFC fights and boxing once in a while but these fights always seem to be a letdown, you know? There’s just so much hype around it, right?
MATT: That’s what I’ve been saying the last few days. In the last twenty years or so, all the big fights I can remember have either been, for whatever reason, I went somewhere – I think it was in 2007 – Oscar De La Hoya fought somebody and it was just… is it twelve rounds? Ten rounds? However many rounds of it, it was just them dancing around and then they took punches in the last, like, thirty seconds.
NASIR: Yeah.
MATT: It was like, “What was the point of this?” I think it was Mayweather-De La Hoya, if I remember correctly.
NASIR: The best fights are sometimes, what do they call it? The undercard?
MATT: Yeah.
NASIR: Sometimes, they’re the best. Every once in a while, you get some headliner – whatever you want to call it – that are going toe-to-toe and it actually makes it enjoyable. But I think those are rare occasions, frankly.
MATT: I’m not a boxing pundit by any means but, from what people have said, this is about five years too late for this match-up. It’s a little bit past their prime.
NASIR: Yeah, exactly.
MATT: I don’t know how I could put that in terms you would understand. Let’s see. You watch soccer. Who’s the one guy? This is David Beckham versus somebody.
NASIR: Yeah, I don’t think I pay attention to soccer that much.
MATT: Well, don’t leave a bad review about me because it’s about to be federally banned. I screwed that up. That was a terrible, terrible lead-in.
NASIR: Terrible transition?
MATT: Yeah.
NASIR: You mean, don’t disparage you, right?
MATT: Yeah. Ah, all right. Well, we’ve talked about this before in California. They made it so it’s in effect now that you can’t have a consumer or a customer sign an agreement saying that you will penalize them if they leave a disparaging review or make a disparaging statement in public against you. And so, there’s a Federal law that’s trying to be passed that will essentially be the same thing – it’s going to ban these non-disparagement clauses which are more or less threats against customers for leaving these bad reviews and sometimes even penalizing the customers as well or threatening penalty if they leave these reviews. You know, I hope I’m saying the same thing I said before when we talked about this because I want to make sure I’m consistent in what I say because it’s been over a year but you have to have a good service and, if you don’t, then it’s kind of what you take. I mean, I guess, all right, let me dull that back because I don’t agree with what I just said.
NASIR: Just rewind it.
MATT: Actually, this is good because my thoughts on this have changed since we recorded the first time. That was my stance the first time. But, with the way Yelp and these other review sites have gone, some of these reviews aren’t legitimate so people can leave – well, okay, I’m just having a conversation with myself because I guess those people wouldn’t be signing the contracts necessarily. I don’t know. It’s a coin flip for me.
NASIR: I guess the customers that are the people that are just making up reviews that aren’t legitimate aren’t signing anything.
MATT: Right.
NASIR: But there are sometimes, you know, we’ve dealt with this before. You get a customer that – not for our firm but our clients – they’ll have a customer where they just don’t have a positive experience and that, frankly, if you’re doing any kind of volume, that’s going to happen one of these days. Even if you’re a great business, one out of a thousand, one out of ten thousand, whatever, it’s going to happen. But then, sometimes, that person that has a bad experience, they feel like it’s in their power – which it is – to accentuate and exaggerate their problems in such a way that they start not only complaining about your business but starts getting really personal and blasting this information all throughout the internet, including Yelp, and having their friends do it. I mean, one of the most common things I see, like, if a bride or groom have a bad experience with a wedding vendor, they’ll have all their guests go onto the site and bring a negative review which, you know, let’s say that, even if they’re rightfully so complaining, that kind of reaction will literally kill a business, taking away the income, and I know a wedding’s a once in a lifetime deal for most people but, to me, those kinds of things end up being part of the experience, part of the wedding, and killing a business, killing a person’s income is a different story.
MATT: Yeah, you’re right. I mean, I can’t even count the number of business owners and businesses we’ve talked to that have had a bad experience or had a customer who’s had a bad experience and they feel like their business has just been decreased like crazy because they have a bad review and it’s just thrown them down this hill.
NASIR: Yeah, and remember we had one client that didn’t quite want to have a non-disparagement clause but something similar which we were very supportive of, we were discussing, but we were in a state that prohibited that kind of thing. For example, in California, a contract that proposes 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, that’s restricted. But what’s unclear is, what if you tell your customers – by the way, the Federal proposed regulation I think is the same person that was involved or somehow part of the California legislation too so there’s some connection there so I assume the Federal law would be similar to the California law. My point being is that, what if you, in your consumer contract, said, “Okay, you can make a review but it has to be truthful”? What’s interesting about that is it’s basically restarting the law because, if one of your consumers posts a review that is not truthful and is disparaging, then that’s defamation, right? And so, basically, having a contract agreement that says you’re not going to commit defamation is not really going in the line of a non-disparagement clause.
MATT: Yeah, you’re not going to have something in contract like, “You’re not going to commit any sort of wrongs against me.”
NASIR: Exactly.
MATT: And, yeah, the one you’re referencing is at drawing a fine line, like, whether it was a non-disparagement clause or not, and the law was so new, we didn’t really know how it was going to play out but it’s funny you said the thing about the same person being involved in drafting this Federal law because this one is different in one aspect that it’s – let’s see – posts a penalty fee, blah blah blah, which gives it, the business, any intellectual property rights over the customers lawful communication so I don’t know if you’ve noticed this part or not but there’s been a couple of businesses that have tried to say, “Anything you post, whether it be a review or a photo, you’re assigning the property rights, intellectual property rights, over to me and so I have control over this and I can do what I want with it and now you have to take it down.”
NASIR: Yes.
MATT: Hey, I’ll give them credit. That’s a creative argument but it didn’t really work.
NASIR: Yeah, and just to take Yelp’s consideration, if you send Yelp a DMCA notice – a Digital Millennium Copyrights Act notice – basically saying that that content that’s been posted is owned by me and so, therefore, should be taken down and you are the legitimate owner of that, Yelp will take it down. But, whether there’s a valid copyright there or not and whether it’s validly assigned and all that, that’s a different issue, but the point is that can’t be effective and – you’re right – it is creative but that’s not going to last very long.
MATT: Yeah. Well, like I said, there’s been a couple attempts already. A dentist saying that there was a clause in agreement automatically granting her IP rights to anything the clients wrote about her and a Florida apartment complex saying any photos – this is crazier because it’s real estate – any photos taken of the property belong to them no matter what the capacity was.
NASIR: That’s interesting.
MATT: It’s a similar law to the California one.
NASIR: It looks like the judge in that case said which was interesting, it constitutes a breach of fiduciary duty and violations of dental ethics which are pretty strong words, and this was in a default judgment apparently. Maybe we can look a little bit more into that case.
If you also recall, when we covered it last time, people were putting basically liquidated damages like automatically, if you put something non-disparaging on the internet, then you would be fined $5,000 and you would be sent a bill or something like that and they would try to enforce that. So, this California legislation, this Federal legislation is in response to that. But, you’re right, you pinpointed the kind of split emotions about we should give the ability for consumers to complain, especially if there’s something wrong with a particular business – you know, a plumber that cheats or a restaurant that has bad hygiene. But the problem is that actual reviews don’t end up being that way. They’re very petty and can be really disparaging in a defamatory manner.
MATT: Yeah. Well, it looks like it might be banned outright but I don’t know if we’ve ever come across a case where the business did end up suing the person and trying to collect some sort of penalty from them and them actually getting money out of it. I don’t think that’s happened what I can find.
NASIR: I’d be surprised. I mean, maybe in some kind of small court. There was cleargear.com who ordered to pay $306,000 to a couple who wrote a negative review because they sued them for $3,500 for the non-disparagement fee and somehow it ballooned to something else but that was last year again.
MATT: Yeah. Well, how about this idea; if you want to draft it up very literally and say, you know, “If you leave a negative review about me, I’m going to fine you.” But let’s say that it’s a truthful negative review and they did a bad job and you still fine them for it, I mean, I would interpret that, you understand what I’m saying?
NASIR: Yeah, that’s true.
MATT: It’s like, “I know I screwed up but I said you couldn’t leave any negative reviews so I’m still fining you money for it.”
NASIR: What if you had a contract agreement that forced your consumers or your customers to leave a positive review?
MATT: I don’t think that would be enforced.
NASIR: I wonder. I don’t think there’s any law against it. I think it might be enforceable. People might have problems with it if you can get them to agree.
MATT: I can’t see that working out if you’re going to try to enforce that in court.
NASIR: I guess that would still be a non-disparagement because what if they want to leave a non-disparaging review? The question would be, are they still permitted to leave a positive review and a non-disparagement review? I guess that didn’t make sense. Well, anyway…
MATT: Getting too deep into this.
NASIR: Yeah, getting too deep. All right. Okay. Well, we can end it there on that great and lighting comment of mine.
MATT: Is there a timeline for this? Do we know?
NASIR: I think it’s just a bill that’s been proposed so we’re probably early in the game. It hasn’t even been assigned a bill number or anything like that. We’ll keep an eye on it though.
MATT: Yeah, keep an eye.
NASIR: What did you say?
MATT: I said, “Yeah, we’ll keep an eye on it.”
NASIR: Oh, I thought you said, “All right, we’ll keep it sound and keep it smart.”
MATT: I could say that as well, if you want.
Keep it sound and keep it smart.
NASIR: Wait. What did you say?
MATT: Uh, you’re making me repeat a bunch of stuff. We got it the first time. Keep it sound and keep it smart.
NASIR: Oh, okay, yeah. I’ll see you later.

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