The Federal Law That Would Prevent Yelp Gag Clauses [e237]

November 9, 2015

The guys kick off the week by discussing the Federal law thatwould prevent companies from using non-disparagement clauses. They also discuss how to detect whether Yelp reviews are fake.

Full Podcast Transcript

NASIR: Welcome to our podcast where we cover business in the news and add our legal twist. My name is Nasir Pasha and, joining us today is our expert on non-disparagement clauses aka “gag clauses.”

MATT: Yeah, I always have to be an expert in something. I’m Matt Staub.

NASIR: That’s right. So, Matt, I mean, what makes you the expert in this area?

MATT: Well, I think it all kind of started when I just used to give a ton of…

NASIR: Disparaging reviews?

MATT: I used to go into businesses and buy a product or pay for services or say I was going to pay for services or buy a product and then, once I finally got the product or the services were performed, I could pay you and write something terrible about your business or you could just give me the product or service for free. That’s where it all kind of started.

NASIR: Okay. Basically, you blackmailed businesses?

MATT: Oh, I wouldn’t say blackmail.

NASIR: No, yeah, you just call it some type of mail but…

MATT: Yeah, you know. We’ve definitely talked about this before – at least on the California side.

NASIR: Yeah.

MATT: If I remember correctly, initially, there was some sort of partial ban and then it got fully banned. I don’t remember the language but, right now in California, it’s been fully banned. We’re talking about non-disparagement clauses.

NASIR: Yeah, you might want to tell everyone what was banned.

MATT: Yeah.

NASIR: They may think otherwise. But, yeah, non-disparagement clauses are those clauses and those agreements which basically say, “Okay, by signing this contract, you can’t say anything bad about us in the public or in general – in private too. “I mean, you can make it pretty general. Obviously, at first glance, it’s like, “Okay, wait a minute, I mean, I can’t speak?” That’s kind of encroaching on freedom of speech and things like that. But, classically, what is a confidentiality clause? I mean, that’s basically what it is. It’s for you to stop spreading information. It’s not like there’s no precedence of actually enforcing these kinds of non-disparagement clauses but, of course, as we’ve seen, it can be definitely abused by businesses.

MATT: Yeah, and it can. I mean, I’ll read the… because it’s fairly short – at least this part of it – this is the Civil Code in California.

NASIR: Wait, are you going to read the entire Civil Code?

MATT: No, yeah, Section 1 – Definitions, probably. This is 1670.8 A1.
“A contract or proposed contract for the sale or lease of consumer goods or services may not include a provision waiving the customer’s right to make any statement regarding the seller or lessor or its employees or agents or…” This is terribly written. “Or concerning the goods or services. It shall be unlawful to threaten or seek to enforce a provision made…” I don’t even know why I’m reading this.

NASIR: I’d tell you, you should have just started at Section 1. That would have been probably better, more interesting.

MATT: Basically, the gist of it is you can’t threaten some sort of penalty against the customer for writing a review. I mean, I think that was the idea behind it.

NASIR: Yeah, and this goes back to I think one of the most publicized case on this was about two years ago – end of 2013. I don’t know if you remember the company but basically they sued their customers on this clause that basically said that, if you leave a bad review or basically disparage us, then you owe us a liquidation damage of $5,000 or so.

MATT: Yeah.

NASIR: They ended up suing and became this big case. Since then, there’s been other cases like this where some courts have said, “Okay, this is unconscionable, this is ridiculous. This is encroaching on this and that.” But I think most judges have been kind of reluctant to really get involved with two parties that are privately contracting even though they may have some kind of reservation in actually enforcing the non-disparagement clause but they have been enforced in the past.

MATT: I think that one example I believe kind of got the wheel – well, the wheels might have already been in motion but that was more trying to ban or provision saying they won’t make any sort of negative comment and it’s kind of grown over time. I mean, just to go back on the California side, you know, the penalty is not to exceed $2,500 for a first violation, $5,000 for the second, and each subsequent violation. I mean, it’s definitely not small numbers. You know, if you’re a huge company, it’s not going to be a big deal. Well, actually, it probably would be because it would apply to a lot of people but, you know, when you’re thinking these smaller companies, those are big hits for sure.

NASIR: Yeah, no doubt. This California statute passed, it was this year, right?

MATT: Yeah.

NASIR: But now it looks like it’s going to be proposed to be expanded nationwide. They’ve already gone through this in the house before and it got killed before it actually was voted on, I think. But, this time, they have bipartisan support in the Senate and it looks like it actually has a good chance of passing now.

MATT: Yeah, and it would definitely change the way that things are done – I mean, across the country. One of the things we obviously talk about a lot on here is Yelp. I’ve spoken with a lot of different business owners about problems with Yelp and sometimes their solution or their proposed solution is to just say, “Hey, can I just put something as part of my contract or part of the terms of purchase that I can’t leave any sort of negative comment, et cetera?” If this gets passed, this would prevent them from doing that. Being in California, it’s not really an issue a lot of times because I’m dealing with California businesses and I’m just telling that you can’t go that route but this would really change the way things are done and it’s one of the few ways that businesses can kind of combat Yelp and other review sites. Now, you’re taking one of those options away for them to battle it albeit a small option but it’s still there currently.

NASIR: Yeah, absolutely. Well, what do you think? When this law passed – and if it does – do you really see businesses making this mistake anyway? Because I don’t see non-disparagement clauses in contracts that often anyway – at least as a consumer I don’t see it often.

MATT: No, I don’t either. Well, here’s the thing. Take two examples. Let’s say you buy something from iTunes and you check the box that you’ve read their terms of service and it’s 1,000 pages long. I did it recently and it was like hundreds of page. You can email it to you if you want. There’s no way people are reading this, whatever.

NASIR: So common, yeah, sure.

MATT: I guess there could be something there. You know, there’s probably not, but I guess there could be kind of hidden. Take that as opposed to I go into a store and buy something. I’m not signing a contract when I purchase this product or whatever. They might have some sort of terms somewhere I guess. Or if I go to a restaurant, for example, I buy a pizza that I’m not satisfied with. They don’t have me sign a non-disparagement agreement prior to ordering or any of that. Obviously, on that side, it’s not going to make a difference at all but, yeah, I think you’re right in the fact that there’s probably not that many businesses right now before this possibly will be passed that have these in place anyways.

NASIR: Yeah.

MATT: Let’s assume this gets passed. Just because it’s a law doesn’t mean there’s still other claims that are possibly available like defamation.

NASIR: Even the California law specifically provides that defamation is still permitted – lawsuits for defamation.

MATT: Exactly. It’s not like this is going to get passed and people are free to write whatever they want and there’s no consequences. I think a lot of these issues are for Yelp or at least some of them are fake reviews that we don’t know where they came from. It could be a variety of things, right? It could be a disgruntled ex-employee. It could be a competitor. It could be – not to make accusations but I’ve been told that it possibly could be a completely fabricated review through the site that is running the reviews to possibly get the businesses to pay for advertising to remove the reviews.

NASIR: Yeah. I think in the early days of Yelp, those accusations used to occur all the time and people seemed to think, you know, they’ve been sued on that. I don’t think anyone’s actually proved it because, well, frankly, even if it’s true, I think there’s difficulty in proving it.

MATT: Yeah.

NASIR: Determining whether it’s a fake review, I mean, frankly, I think because we’re in the business, every single review, I don’t care how good or how believable it sounds, it’s hard for me to really trust these online reviews – unless it’s a large number of reviews and they’re consistent, then I feel like there’s something there.

MATT: I know you’re against Yelp completely but, from what I’ve found, the only real way you can trust it is, yeah, if there’s hundreds of reviews and it’s all about the same, you can trust that.

NASIR: Yeah.

MATT: I think it’s a flag if there’s all five stars – if all the reviews are five stars – because that just means it’s somebody who reached out to their friends and family to write them.

NASIR: Yeah, or the opposite.

MATT: Yeah, I want to see a good variety of reviews ranging from, well, if it’s a mix of four and five, mostly five, and there’s more than a handful of reviews, I think it’s something you can trust. But having looked at a lot of different reviews – some of which the business owners are saying that are fake – there are some common things that come up. I mean, some of them are obvious. When someone just leaves a general, broad review that has no detail or you give me a business and I could write the fake review in a minute then, yeah, it kind of looks like it’s obvious.

NASIR: And that’s a good sign that it might be just like a bought or you know, on, you know, people pay for that.

MATT: Yeah.

NASIR: I don’t know if you heard about this but, basically, there were all these guys that were selling reviews on and, on, in order to actually leave a review, you actually have to be a verified customer and it also gives an indication whether you actually bought the product. Fiverr – and all these other companies too – they would sell these reviews, people would actually buy the product. You’d pay them to buy your product and also maybe pay them a little extra to actually leave a positive review. Of course, this is manipulating the system. Instead of actually suing the people that were paying for this, they started suing the actual people that were selling the service.

MATT: I think I might have heard about that at some point, yeah. That’s another thing. At least for Yelp, for example, or any of these spots if you can track the person who left it, if you can’t figure out who the person is or if they leave a small number of reviews – especially one review and that’s the only one – I guess the key too is companies that keep track, if they mention something about a transaction and you have a business that keep track of all their customers like a dentist’s office or something and this review is left by someone whose name doesn’t come up in your system and they only have one review, you know, it’s easy to tell from a business owner’s perspective whether that’s fake or not. The problem is from the consumer’s perspective.

NASIR: They have no idea.

MATT: Yeah, we have no idea. I mean, all we see is this person that names the dentist and says, “Oh, he broke my tooth,” or recommended I do this or that, I mean, it’s easy to come up with a fake review if you want to.

NASIR: Yeah, and I do it all the time. in fact, that’s one of the ways that you can determine if it’s a fake review – if I’m the author, then you can pretty much guarantee it’s fake. That’s another tidbit for you.

MATT: I was impressed you got to Yelp Elite status.

NASIR: With all my fake reviews.

MATT: Yeah. I clicked on your profile. It’s just hundreds of one-star reviews.

NASIR: I’m sure they start filtering it at that point. I mean, they have this so-called sophisticated algorithm to filter reviews. I’m sure there’s other ways to determine if the review is fake and we’ll see but I think this non-disparagement clause which we discussed before but I think it is going to pass. I think it should pass because I have seen businesses kind of abuse this but, at the same time, like, you kind of have to look in their shoes as a business. It’s really a symptom of another problem that they’re trying to fix and not wisely, I would suppose.

MATT: This non-disparagement or the gag clause – gag order – it’s still allowing free speech. I mean, I guess that’s the idea behind it – or one of the ideas. But, like we were saying before, this doesn’t give the people that write these, you know, if you’re going to write something, it doesn’t give them free rein and they can write whatever they want. There’s still other laws in place that govern whether what they say is legal or illegal.

NASIR: Yeah, I think, if they pass this law, it really should be sistered with a provision that allows a business owner to subpoena a company like Yelp to provide the information as to who left that review. I think that’s the problem. You have to balance it. When someone’s leaving a fake bad review online and Yelp is unable to disclose who that user is, that’s a problem. I mean, that shouldn’t be protected speech.

MATT: Yeah, I know, I think that’s a huge thing. I don’t think that’s going to be added in there but, yeah, Yelp’s never going to do that because, if that information’s readily available and they send it out, businesses are going to just have a huge advantage.

NASIR: That’s true, and their concern would be that, all of a sudden, you have these businesses that keep suing their users. But here’s the deal – Yelp, they want to be a trusted source of reviews. Me, right now, personally, I don’t trust their reviews because of the stuff that we’ve dealt with. You, of course, you sold out to the devil but the point being is that, if they want to be a trusted source, then why not give the names? I mean, people should be able to stand behind what they say. This isn’t Facebook where you’re kind of spreading gossip and the recourse is not as substantial. This is real businesses that are losing money. And so, where is the accountability? You’re providing a business and a service to provide some kind of trusted source reviews, why not give those users up?

MATT: You done with that?

NASIR: Yeah, Nasir Pasha, signing out.

MATT: No, that’s fair points. I mean, every day, more and more people find out that Yelp isn’t all it’s cracked up to be. People are still going to use it. It’s just how much they trust it. I think you’re an outright non-user, I’m a sceptical user. My wife is a blinded user that doesn’t know anything about the…

NASIR: Well, most people don’t. I mean, they don’t realize it.

MATT: I’ve told her many times, that’s the problem.

NASIR: That is a problem. I always tell people that the market’s going to decide. You know, I mean, I think already Yelp, slowly but surely, has lost a little credibility but it’s still a useful tool. I mean, I’ll give it that. As I said, you still are able to determine the quality of a particular business based upon a number of factors. You can’t just see that there’s five reviews with five stars and that’s it. Like, if it has a lot of reviews with a lot of stars then that’s a good indication. The problem is when a small business isn’t very popular or it hasn’t advertised online to be able to have people to find them on Yelp, then they’re going to be hurt the worst. One bad review has a huge effect.

MATT: Yeah, exactly.

NASIR: All right, non-disparagement then, huh?

MATT: Yeah, we’ll see. What are the details with this? Next year?

NASIR: Yeah, probably. I’m glad we’re covering it now because I want to follow it through its passing. Maybe it won’t pass but I have a feeling that it would.

MATT: Yeah, I’m not even sure. We mentioned California. I’m sure there’s other states that have adopted something similar.

NASIR: I know our non-disparagement in California started January 1, 2015. I haven’t heard any others since then. Like always, California leads the way.
All right, thanks for joining us, everyone.

MATT: Keep it sound, keep it smart.


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Legally Sound Smart Business

A business podcast with a legal twist

Legally Sound Smart Business is a podcast by Pasha Law PC covering different topics in business advice and news with a legal twist with attorneys Nasir Pasha and Matt Staub.
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Fractional General Counsel Services

Pasha Law Select offers the expertise of a high-end general counsel legal team for every aspect of your business at a fixed monthly rate. Pasha Law Select is deliberately designed to allow our legal team to be proactive, to anticipate, and to be comprehensive in serving our clients. To be great lawyers, we need to know our clients. We can’t know our clients unless we represent a select number of clients in the long-term. This is Pasha Law Select.

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