For the first time since the Consumer Review Fairness Act (CRFA) went into effect in March of 2017, the FTC has brought three separate actions enforcing the CRFA to halt the use of “gag clauses” – i.e., contract provisions that prohibit consumers from writing or posting negative reviews. The CRFA bans these types of non-disparagement clauses in consumer form contracts when the clauses are imposed on individuals without giving them a meaningful opportunity to negotiate. According to the FTC, an HVAC provider, a flooring company, and a horseback riding operation all violated this requirement. For example, the flooring company included language in its form contract that stated “By signing this purchase order you are agreeing under penalty of civil suit…not to publicly disparage or defame [the company] in any way or through any medium.” All three businesses have entered into settlement orders with the FTC, under which they are banned from using gag clauses in form contracts, and they must notify consumers who already signed their form contracts that the gag clauses are void and that the consumers have a right to publish their honest reviews, even if negative.
There are two other interesting facts to note regarding these cases. One is that the FTC did not allege in its complaints that the businesses knowingly violated the CRFA. In other words, the existence of the gag clause alone was enough for the FTC to take action, without having to establish a knowledge element. And second, in all three cases, the contracts specified that violation of the gag clause would have resulted in a civil lawsuit and/or damages. For instance, the horseback riding company’s form contract stated that its customers would be charged a minimum of $5,000 in damages if any disparaging statements were made. While these penalties may have increased the risk of regulatory scrutiny, it’s worth pointing out that they’re not necessary for the FTC to bring suit under the CRFA; the use of a non-disparagement clause that simply bars or restricts someone from writing or posting a review, even without the threat of a penalty, is enough to violate the Act. So if you’re entering into form contracts with consumers, don’t hamper their ability to review your products, services or conduct – and if you’re unhappy about this, well, you could always write a negative review about the CRFA.