California Blocks Online Non-Disparagement Clauses

Bad reviews can cost good will and lost donations, but trying to prevent them could cost cold, hard cash in California. Gov. Jerry Brown signed into law the “Yelp Bill,” which prevents anyone doing business in California from adding non-disparagement clauses to their terms of service.

A non-disparagement clause seeks to prevent customers (or donors) from posting negatively about the business or nonprofit on the Internet or social media. This new law, an addition to the California Civil Code, applies to any entity doing business in California, not just those based in the state. Penalties are $2,500 for the first violation and $5,000 for subsequent violations, with a $10,000 penalty for intentional violations.

Jan Masaoka, CEO of the California Association of Nonprofits, based in San Francisco, thinks nonprofits won’t have much to worry about with this bill because they don’t usually include non-disparagement clauses. “It would be against people’s values, and impractical,” she said. “I can’t imagine a nonprofit saying, ‘We can’t give you any soup at this soup kitchen unless you agree not to say anything bad about us.’ I really don’t see nonprofits saying things like that so it’s not much of an issue.”

In the commercial world, said Masaoka, most users know enough not to weigh one bad review too heavily, and she believes the same can be said for the nonprofit sector. Using a restaurant example on the service Yelp, “One bad review could mean the chef just had an off night,” she said. It’s only when the bad reviews start piling up that a pattern could be emerging. “We didn’t take a position (on the bill), but we welcome this kind of support of unencumbered commerce and free speech,” said Masaoka.

Masaoka cited GreatNonprofits.org as a site where nonprofit non-disparagement clauses could apply. “When you see negative comments there, most people take them in stride. I think people know enough to do that,” she said. GreatNonprofits.org is a website that hosts reviews and ratings for other nonprofits. The Redwood City, Calif.-based GreatNonprofits.org did not respond to requests for comment.

According to written reports, the bill was inspired by the experience a Utah couple had with a vendor. The couple posted a negative review of the company on the site RipoffReport.com in 2009, and the vendor ordered the review taken down or a fine of $3,500 paid for violation of its non-disparagement clause, although the clause did not appear on the company’s website when the order was placed.

The firm then sent the debt to collections, and the couple sued in federal court, saying their First Amendment right to freely communicate their experience had been violated. The couple won a $306,750 against the company earlier this year.