Companies illegally included non-disparagement clauses in form contracts
The Federal Trade Commission has issued two administrative complaints and proposed orders enforcing the Consumer Review Fairness Act (CRFA), which prohibits businesses from using form contract terms that bar consumers from writing or posting negative reviews online, or that impose financial penalties for doing so.
In settling the Commission’s complaints, two companies, one that rented vacation properties in Florida and one that manages rental homes in Maryland, have agreed not to use these or similar provisions in the future. The companies and their owners also must notify affected consumers that the non-disparagement clauses are void.
The CRFA prohibits non-disparagement provisions in consumer form contracts. It defines such contracts as those with standardized terms used in selling or leasing goods or services, and that are imposed on an individual without a meaningful opportunity for the individual to negotiate the contracts’ standardized terms. The statute became effective on March 14, 2017.
The FTC’s Complaints
The FTC’s administrative complaints against Shore to Please Vacations LLC and Staffordshire Property Management, LLC allege that the companies and their owners illegally used non-disparagement provisions in consumer form contracts in the course of selling their respective services, in violation of the CRFA.
Shore to Please Vacations LLC. The FTC alleges that from June 2017 through at least August 2017, the Shore to Please respondents included a “Disclaimers” paragraph in form contracts offered to consumers for online vacation house rentals. According to the complaint, the disclaimer contained prohibited language, including, “[b]y signing below, you agree not to defame or leave negative reviews (includes any review or comment deemed to be negative by a Shore to Please Vacations LLC officer or member, as well as any review less than a “5 star” or “absolute best” rating) about this property and/or business in any print form or on any website….” In addition, the contract stated that, “[d]ue to the difficulty in ascertaining an actual amount of damages in situations like this, breaching this clause … will immediately result in minimum liquidated damages of $25,000 paid by you to Shore to Please Vacations LLC.”
Staffordshire Property Management, LLC. The FTC alleges that between approximately February 2016 and October 2018, the Staffordshire respondents used form contracts in the course of processing the rental applications of hundreds of consumers. Each contract contained an “Authorization, Agreement & Release Consent Form” that included prohibited language such as, “[t]he Applicant … specifically agrees not to disparage [Staffordshire], and any of its employees, managers, or agents in any way, and also agrees not to communicate, publish, characterize, publicize or disseminate, in any manner, any terms, conditions, opinions and communications related to [Staffordshire], this application, or the application process….” It further stated that prospective renters specifically agree that “[a]ny breach of such confidentiality will support a cause of action and will entitle [Staffordshire] to recover any and all damages from such a breach.”
The Proposed Settlement Orders
Each proposed consent order 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 also require the Shore to Please and Staffordshire respondents to notify affected consumers that the challenged contract provisions are void, and that they have the right to post honest reviews online. The proposed order against Shore to Please requires it to dismiss with prejudice a lawsuit count alleging that a renter violated its non-disparagement agreement. The proposed orders also impose compliance and reporting requirements on the companies.
FTC’s Previous CRFA Actions
Earlier this month, three companies agreed to settle similar CRFA-related complaints, including a Pennsylvania-based HVAC and electrical provider, a Massachusetts-based flooring firm, and a Nevada-based horseback trail riding operation. Each agreed to separate proposed 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.
The Commission vote to issue each administrative complaint 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 agreements 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