User-driven websites, where users are able to leave feedback about products or businesses, have increasingly become the backdrop for disputes over the non-disparagement clauses used to shield businesses from critical online reviews. Companies use these clauses to create penalties for consumers who leave negative feedback on platforms such as Yelp, Twitter, Facebook and Amazon.

A recently approved California law, however, prohibits companies from using non-disparagement clauses in contracts for the sale or lease of consumer goods or services. AB 2365, dubbed the “Yelp Bill,” makes it unlawful for California businesses to attempt to penalize consumers for publishing negative comments, such as in online reviews. The law, enumerated as California Civil Code section 1670.8, imposes civil penalties of $2,500 for initial violations and $5,000 for subsequent violations, as well as an additional penalty of $10,000 if the violation was willful, intentional or reckless. The law authorizes consumers, the California Attorney General and local district attorneys and city attorneys to bring civil actions for violations.

The Yelp Bill may trigger copycat legislation in other states, and at the federal level. Similar legislation might soon reach the floor of the US House of Representatives, and many states already have passed statutes protecting residents from strategic lawsuits against public participation (“anti-SLAPP” laws). These laws may prevent companies from bringing lawsuits claiming that consumers defamed their businesses by posting online reviews. The Yelp Bill seeks to take anti-SLAPP laws one step further by prohibiting such suits based upon breach of contract rather than defamation.

For now, the enforcement of non-disparagement clauses in consumer contracts or terms-of-service agreements remains a state-by-state issue. Companies using non-disparagement clauses in consumer agreements should seek legal assistance to determine whether such clauses will remain enforceable in their jurisdictions. For further guidance on the current landscape of social media law, please consult our Social Media Handbook.