Sunday, December 11, 2016

Non-disparagement clauses now illegal in Maryland- mostly.

When an American's expectation of "free speech" overlaps commercial relationships, things get weird. The First Amendment of the U. S. Constitution gives you the absolute right to stand before the White House and shout your grievances across the south lawn toward the Oval Office, but the contract you signed to purchase a thing to be tossed after it breaks can force you to keep negative opinions about the retailer to yourself. Post your negative review on the internet, and you may well face civil penalties and a lawsuit.

The First Amendment restricts your government from silencing your speech, but contracts may have language preventing you from disparaging a company or a product. Can you Imagine getting sued for something you post on Yelp, Facebook or Amazon about something you purchased? It happens, and is mostly legal.

Maryland is just the second State to pass a law to make illegal and unenforceable anti-disparagement clauses in contracts for consumer products. California is the other state, having passed Assembly Bill 2365 in 2014.A federal bill called the Consumer Review Freedom Act passed through the U. S. Senate in 2015, but has not made it through the House of Representatives to the President's desk. It is extremely unlikely that the newly elected administration and legislature will pass the measure into law.
You are a "consumer" when you are the "actual or a prospective purchaser, lessee or recipient of consumer goods or services. "
"Consumer goods" are defined as "goods or services that are primarily for personal, household or family purposes." The introductory language to the bill says that this definition is intended to mirror the definitions found in the Consumer Protection Act, where consumer goods are broadly defined to include credit, debts, obligations, goods and real property.
Any business that seeks your promise to keep silent with a non-disparagement clause now commits a false and deceptive trade practice under the Consumer Protection Act. A violation of the Consumer Protection Act further exposes the business to your claim for damages and attorney fees.
Because the new law does not apply to contracts made before October 1, 2016, you must rely on traditional contract analysis to beat a non-disparagement clause in a contract made before that date.  For example, a consumer's silence may not have been purchased for real or adequate consideration-- they are often buried in long documents, they seem unconnected with the subject of the contract, and there is no extra money paid for the promise. The promise may also reside in what a court would call a "contract of adhesion" where the consumer has so little bargaining power that it is patently unfair to include the restriction. And there are other available contract defenses, depending on your specific situation.

Other types of non-disparagement clauses will remain legal and widely used. The restriction routinely appears in settlement agreements where money is paid in exchange for silence and no admission of liability for specific claims. Where silence is a material object of the agreement, the term will be readily enforced. The clause also routinely appears in documents where business people share proprietary information while negotiating a deal, but the deal is never made. The parties then agree to walk away without disparaging each other or their products.
The Maryland law makes good sense, particularly in this age of on-line reviews and websites that aggregate product and service recommendations and reviews. An informed consumer needs all the information-- both positive and negative-- before making an informed decision. The courts have for years reminded us that the market place is governed by "caveat emptor," the principle that the buyer alone is responsible for checking the quality and suitability of goods before a purchase is made. This new law simply assures that the consumer will have more information. After all, if a business provides for customer reviews on its Facebook, Amazon or Yelp page, then it should be prepared to receive both negative and positive reviews. Anything less presents an incomplete and perhaps dishonest portrayal of the entity's products and services.
The consumer bears some responsibility for making honest and accurate reviews. The false accusations of bad service or poor quality can haunt a business for some time. State laws punishing libel and slander, coupled with rules for the imposition of injunctions,  remain available to the business to curtail the most extreme behavior.
Use your newly enhanced powers wisely!

Maryland H.B 131 became law in 2016 and applies to contracts made after October 1, 2016. It makes illegal and unenforceable contract provisions that bar disparaging public comments and social media postings by a "consumer."