Companies included illegal non-disparagement clauses in form contracts with consumers
The Federal Trade Commission has issued three separate proposed administrative complaints and orders enforcing the Consumer Review Fairness Act (CRFA), which prohibits businesses from using form contract provisions that bar consumers from writing or posting negative reviews online, or threatening them with legal action if they do. These are the first Commission actions exclusively focused on enforcing the CRFA.
The companies settling the FTC’s complaints include a Pennsylvania-based HVAC and electrical provider, a Massachusetts-based flooring firm, and a Nevada-based horseback trail riding operation. Each has agreed to separate Commission orders barring them from using such non-disparagement clauses in form contracts for goods and services, and requiring them to notify consumers who signed such contracts that the prohibited text is not enforceable.
“Many online shoppers use customer reviews and ratings to get information, but these companies used gag clauses in their form contracts to stop customers from posting honest but negative feedback,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “These gag clauses are illegal, and companies that know it but use them anyway will be subject to civil penalties.”
The CRFA, which the FTC enforces at the direction of Congress, prohibits non-disparagement provisions in consumer form contracts. The CRFA defines such contracts as those with standardized terms that are used in selling or leasing goods or services, and which are imposed on an individual without a meaningful opportunity for the individual to negotiate the contracts’ standardized terms. The statute was enacted in December 2016 and became effective on March 14, 2017. While the FTC has brought cases in the past related to non-disparagement clauses, those cases included additional charges, such as deceptive advertising.
The FTC’s Complaints
According to the FTC’s administrative complaints against: 1) A Waldron HVAC, LLC and its owner, Thomas J. Waldron; 2) National Floors Direct, Inc. (NFD); and 3) LVTR LLC (LTVR) and its owner, Tomi A. Truax, the respondents illegally used non-disparagement provisions in consumer form contracts in the course of selling their respective products, in violation of Section 2(c) of the CRFA. The complaints do not allege that the respondents’ violations were knowing. Each complaint is described below:
A Waldron HVAC, LLC. The FTC alleges that this Pittsburgh-based company, which also does business as Waldron Electric Heating and Cooling, LLC, and its owner included non-disparagement text in form contracts offered to prospective customers in the course of selling their goods and services. The text allegedly violating the CRFA included language such as: 1) “CUSTOMER and COMPANY agree that the within contract is a private and confidential matter and that the terms and conditions of the contract…shall not be made public, or given to anyone else to make public, INCLUDING THE BETTER BUSINESS BUREAU”; and 2) “Should the CUSTOMER breach this confidentiality clause, the CUSTOMER agrees to pay COMPANY liquidated damages....THE COMPANY MAY ALSO BE AWARDED COUNCIL [sic] FEES AND COSTS AS REQUESTED BY COMPANY.”
National Floors Direct, Inc. The FTC alleges that NFD, based in Braintree, Massachusetts, included non-disparagement text in form contracts it offered to thousands of its consumers in Massachusetts, Rhode Island, and New Hampshire in the course of selling its flooring products and services. The text allegedly violating the CRFA included language such as: “By signing this purchase order you are agreeing, under penalty of civil suit…not to publicly disparage or defame National Floors Direct in any way or through any medium.”
LVTR LLC. The FTC alleges that LVTR, a recreational horseback riding company based in Nevada (doing business as Las Vegas Trail Riding), included non-disparagement text in form contracts it offered consumers who booked trips with the company. The text allegedly violating the CRFA included language such as: 1) “CONFIDENTIALITY/NON DISPARAGEMENT – I agree not to call Animal Control or any governmental agency or individuals if there is a discrepancy to how the horses/animals or property are taken care of. You will be charged a minimum of $5,000.00 in damages if you report anything or making contact [sic] with any persons or agency or by having another individual(s) do it on your behalf”; and 2) “I agree to our non-disparagement and protection of reputation clause. For the purposes of this Section, ‘disparage’ shall mean any negative statement, whether written or oral including social media about our Company, Volunteers, Owners, Representatives, etc.”
The Proposed Settlement Orders
In each case, the proposed order settling the FTC’s charges includes injunctive and other relief related to the use of form contract terms that prohibit, restrict, penalize, or transfer rights in consumer reviews from consumers to the companies. The orders prohibit the companies from offering a form contract to any consumer that includes a review-limiting term or requires that a customer accept such terms as a condition of the company complying with the contract.
In addition, the orders require the companies to notify, via mail or email, customers with whom they entered into form contracts containing allegedly illegal non-disparagement clauses on or after March 14, 2017, that the non-disparagement provisions are void and cannot be enforced, and that those customers can publish their honest reviews, even if their comments are negative. March 14, 2017 was the date after which the CRFA prohibited the use of these provisions in consumer form contracts.
The orders also require the respondents to submit signed acknowledgements that relevant company personnel have received them. Finally, they require the companies to file compliance reports with the FTC and to keep records that the Commission can use to ensure that they remain in compliance.
The Commission vote to issue each of the administrative complaints and to accept the proposed consent agreements was 5-0. The FTC will publish a description of the consent agreement packages in the Federal Register soon. The agreement will be subject to public comment, after which the Commission will decide whether to make the proposed consent orders final. Instructions for filing comments appear in the published notice. Comments must be received 30 days after publication in the Federal Register. Once processed, comments will be posted on Regulations.gov.
NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $42,530.
The Federal Trade Commission works to promote competition, and protect and educate consumers. You can learn more about consumer topics and file a consumer complaint online or by calling 1-877-FTC-HELP (382-4357). Like the FTC on Facebook, follow us on Twitter, read our blogs, and subscribe to press releases for the latest FTC news and resources.
Mitchell J. Katz
Office of Public Affairs
Carl H. Settlemyer
Bureau of Consumer Protection