Non-disparagement clauses: a new way to get nothing for something

Disreputable businesses want you to sit down and shut up. They think this is a way to do it.

Most everyone's familiar with non-disclosure clauses. They're very common in employment contracts and are meant to keep employees and contractors from disclosing proprietary information that they acquire through their everyday duties. 

Unless you're Edward Snowden, it's pretty easy to see the reasoning behind these clauses. After all, businesses need to safeguard their formulas, business plans and strategies and as long as both parties are aware of the non-disclosure clause and agree to it, everyone is on the same page.

Non-disclosure clauses are also common in lawsuit settlements. Both parties agree to keep the terms of the settlement confidential. The argument is that both parties benefit, as their financial affairs remain private. 


An entirely different -- and increasingly common -- situation is one in which a consumer buys a product or service and, without realizing it, agrees to a non-disparagement clause, a sneaky little sentence or paragraph that prohibits the consumer from making negative comments about the goods and services they bought and, presumably, paid for.

Such clauses are objectionable for any number of reasons.

First of all, these little tricksters usually exist deep in the fine print of a sales contract, invoice, receipt or website terms of use, so chances are good that only one party -- the seller -- knows about them.

Second, they work in only one direction -- they prohibit you from making negative comments while leaving you free to say what a great job Dr. Hamfist did on your root canal. In the publishing world, this would amount to prior restraint, which is nearly always found to be unconstitutional except in cases involving national security.

In terms of simple contract law, it's also a dubious proposition. A contract by definition involves "consideration" -- one party pays the other to produce or hand over something of value. But a non-disparagement clause is one-sided -- you give up your right to free speech in exchange for nothing. Meanwhile you remain obligated to pay for a product or service that may or may not be satisfactory.

Some merchants even insert penalties in their non-disparagement clauses, asserting the right to fine you -- not just shut you up. The most notorious case involved, which tried to fine a customer $3,500 for posting a negative report on RipOffReport.

The consumer had ordered a can of "Whoop Ass" and other novelty items which he alleged were never delivered.  The case was thrown out but the consumer's credit report was affected.

In New York, a dentist allegedly threatened Robert Allen Lee with $110,000 in fines after Lee posted negative reviews on Yelp and DoctorBase. Lee has since sued the dentist and the case at last word was moving through the courts at the expected stately pace.

Wedding singers and caterers have figured in a few other cases, so prospective brides and grooms should read all contracts carefully. 

A grain of suspicion

You have to wonder why someone would be so eager to lure you into such a trap.

I'm reminded of an associate who was going to the same industry conference I was. He invited me to fly with him in his new airplane, thus saving me the hassle and expense of a commercial flight. I was a little reluctant, believing that strange dogs and weekend aviators are best avoided but my decision became final when he mentioned I would need to sign a release, holding him and -- more significantly -- his heirs harmless if we wound up embedded in the side of a hill.

"Inadvertent impact with terrain," was the phrase he used, as I recall.

My pilot friend at least gave me fair warning, which is more than consumers tricked into a non-disparagement agreement get. Since no one in her right mind would knowingly agree to anything as outrageous as a one-sided gag order, non-disparagement clauses are nearly always slipped in surreptitiously, as is happening more and more often lately.

There is a growing band of smalltime merchants and professionals -- dentists seem particularly prickly on the subject -- who rely on gag orders to silence their customers. This has to make you wonder about their track record and/or personality. 

What such clauses really amount to is the merchant taking a short-cut. After all, everyone has the right to go to court when wronged. If a business owner believes he has been libeled by a customer, he has every right to sue for damages, if any. This is, of course, an expensive, lengthy and unpleasant process -- not to mention an uncertain one, as it should be. 

Those damned review sites

Of course, the underlying cause of all this is sites like this one -- review sites that give consumers the opportunity to share their experiences, good and bad, with each other.

For the first decade or so that review sites existed, they were the frequent target of lawsuits by aggrieved businesses whose lawyers assured them they could sue their way back to a sterling reputation.

But successful review sites have good lawyers and mount an aggressive defense when challenged, often leaving the peeved business owner with a huge legal bill and nothing to show for it.

Having learned that lesson, businesses turned to suing the consumers who posted on review sites instead of the sites themselves. But this requires getting the consumer's identity, since most sites use only first names, user IDs or some other incomplete form of identification.

This put the outraged business owner back in the position of trying to pry consumers' identities out of well-armed review sites, efforts that generally resulted in more big legal bills, a black eye in the press and -- to add injury to expense and insult -- no identification data.

Enter the non-disparagement clause. No lawsuits, no battles with pugnacious review sites, no nasty publicity -- just a sharp, silent sword poised above the head of any consumer who dares express a negative opinion in public.

Can it be legal?

This, you say, is so outrageous it can't possibly be legal. Could be, but like so many relatively new phenomena, the use of non-disparagement clauses against consumers has not yet amassed a body of case law that provides a clear answer one way or the other, meaning cases will be decided on a state-by-state basis -- at best -- for the foreseeable future.

The "gotcha" factor is crucial, UCLA constitutional law professor Eugene Volokh said in a recent Marketwatch story. While terms agreed to in a contract are generally enforceable, Volokh said that if a reasonable consumer would be very surprised by such a clause, it might be deemed unenforceable.

“You could see some of these invalidated,” he said. 

In California, the so-called "Yelp bill" would prohibit non-disparagement clauses unless the consumer had "knowingly, voluntarily, and intelligently waived his or her right to voice a negative opinion."

Avoiding trouble

As always, the best way to stay out of trouble is to read sales contracts, invoices, and those horrible website terms of use. If you spot words like "non-disparagement," "negative review," "no-review policy" or "public comment," take your business elsewhere.

An alternative -- and much easier -- course of action is to check consumer review sites before making a purchase. If the business you're considering has a mixture of good, so-so and bad reviews, that's a good sign. It means that a.) the reviews are legitimate and b.) the business does not harass and hound its customers if they dare utter a discouraging word.

Obviously, if all the reviews are bad, it may be a good idea to look elsewhere. 

It's encouraging if you find that the business actively engages with consumers on the review site -- or on their own comments page -- and tries to resolve complaints. After all, everyone makes mistakes or has the occasional bad day. Those who admit they're not perfect are generally much more pleasant to deal with than control freaks and shady operators. 

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