California wants to stop companies from retaliating against customers who leave bad reviews. Last Tuesday, Governor Jerry Brown signed a law that bans them from adding "non-disparagement" clauses to their terms of service. Such clauses could let caterers, hotels, or other businesses fine customers who write negative reviews on places like Yelp and TripAdvisor. While it's not unusual for employees to sign a non-disparagement clause, it's not clear how common this practice is for customers. MarketWatch cited several examples in a piece last month, reporting that a number of online retailers, dentists, and others had attempted to fine or silence critics by pointing to sections buried in their contracts and terms of service. A hotel in Hudson, NY recently made the news for threatening to fine guests $500 for every negative review (it later claimed the policy was "tongue-in-cheek.")
California, as far as we can tell, is the first state to ban customer non-disparagement clauses. Yelp, in a celebratory blog post, urged other states to follow. But although the rule will stop companies from making rules that let them fine customers, it won't settle all the debates around online reviews. Businesses can and do sue over statements that they say are factually untrue and defamatory. The Virginia Supreme Court is set to rule on a case filed against Yelp by Hadeed Carpet Cleaning, which is attempting to make Yelp reveal the names of reviewers that it alleges aren't actual customers. Business owners, meanwhile, unsuccessfully argued in a lawsuit that Yelp was extorting them by altering business ratings if they didn't buy advertising. Yelp denied the charge, and an appeals court said that even if it were true, it would constitute "at most, hard bargaining."