The FTC has cracked down on contracts devised to stifle honest business reviews.
Three U.S. companies earned some unwanted attention from the Federal Trade Commission (FTC) earlier this month as government officials cracked down on Consumer Review Fairness Act (CRFA) violations.
According to officials, Pennsylvania-based A. Waldron HVAC (and its owner Thomas J. Waldron), Massachusetts-based National Floor Direct, and Nevada-based horseback trail riding operation LVTR (and its owner Tomi A. Truax) allegedly placed language in their service agreements that barred customers from writing or posting negative reviews.
Andrew Smith, director of the FTC's Bureau of Consumer Protection, said such measures were antithetical to consumers' rights.
"Many online shoppers use customer reviews and ratings to get information ... from honest but negative feedback," Smith said. "These gag clauses are illegal, and companies that know it but use them anyway will be subject to civil penalties."
What is the CRFA?
Passed in December 2016, the CRFA prohibits "non-disparagement provisions in consumer form contracts." Contracts that fall under the CRFA's purview are 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."
According to the act, it's illegal for companies to use a contract provision to prevent a client from reviewing a business's products, services and conduct. The act also goes after companies that fine or penalize negative reviewers or require consumers who agree to the company's terms to give up their intellectual property rights to their reviews.
Under the CRFA, a company is allowed to remove or prohibit a review that "contains confidential or private information; is libelous, harassing, abusive, obscene, vulgar, sexually explicit, or is inappropriate with respect to race, gender, sexuality, ethnicity, or other intrinsic characteristic; is unrelated to the company's products or services; or is clearly false or misleading."
However, the FTC said that the CRFA "doesn't prohibit non-disparagement clauses in individual talent agreements."
Since the FTC considers a violation of the CRFA as conducting an "unfair or deceptive act or practice," officials said any violation can come with financial penalties and a federal court order.
Ever since the regulations came into effect in March 2017, most CRFA complaints were charges for deceptive advertising. The three latest complaints, however, are the first ones to strictly hinge on the companies' intention of suppressing negative reviews.
In each case, the FTC's charges included "injunctive and other relief" relating to the companies' prohibitive language in their form contracts. Each complaint also prohibits the companies from using any review-limiting language in their form contracts or requiring that a consumer accept those terms as a condition of working with the company.
In addition, the FTC ruled that the three companies are required to notify customers who entered into a contract with them on or after March 14, 2017, that any non-disparagement clauses are void and can't be enforced.