May 10, 2019

non-disparagement-provision
Non-Disparagement Provision Ban

The Federal Trade Commission (“FTC”) has settled its first Consumer Review Fairness Act (“CRFA”) violation investigations. Enacted in December of 2016, the CRFA prohibits businesses from offering provisions in form contracts that prevent customers from publicly expressing honest reviews about products or services, or penalizing those customers who have publicized such reviews. Complaints were filed against: 1) A Waldron HVAC, LLC and its owner; 2) National Floors Direct, Inc.; and 3) LVTR LLC and its owner (collectively, “Respondents”). In the complaints, the FTC alleged that Respondents violated Section 2(c) of the CRFA, by offering customers form contracts that contained non-disparagement provisions. In each case, the Respondents have accepted proposed consent agreements, and are awaiting public comment before a final order is entered.

Why were the non-disparagement provisions deemed invalid?

Banning Non-Disparagement Provisions

In the past, we have blogged about how the FTC acts to protect consumers from false and deceptive online reviews. Equally alarming to the FTC, are reviews that are never shared with the public because businesses have contractually prohibited customers from communicating their negative experiences. The FTC maintains that these contractual non-disparagement provisions harm the public by preventing future customers from obtaining accurate prior customer experience information.

Terms of the Proposed Consent Agreements

Pursuant to the terms of their respective settlement agreements with the FTC, Respondents are prohibited from offering prospective customers any contract that limits their ability to post public reviews relating to Respondents’ goods or services. The Respondents also must notify all customers who entered into a contract with them after March 14, 2017, that their agreements contained unenforceable non-disparagement provisions. In addition, Respondents are required to file periodic compliance reports with the FTC.

Negative reviews can be harmful to businesses, but an FTC investigation can be even more damaging from a financial and reputational standpoint. Considering the regulatory and contractual risks, businesses should always consult with a knowledgeable attorney before drafting customer agreements.

If you are interested in having a contract prepared for your business or if you are facing an FTC or state attorney general investigation, please e-mail us at info@kleinmoynihan.com, or call us at (212) 246-0900.

The material contained herein is provided for information purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.

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