BILL ANALYSIS Ó
AB 2365
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Date of Hearing: May 7, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 2365 (John A. Perez) - As Amended: April 24, 2014
Policy Committee:
JudiciaryVote:10-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill makes non-disparagement clauses void and unenforceable
for certain consumer contracts. Specifically, this bill:
1)Makes a contract for the sale of consumer goods or services
unlawful if it requires the consumer to waive the right to
make any statement regarding experience with the seller or its
employees or agents, unless the waiver was knowing, voluntary,
and intelligent.
2)Makes it unlawful to threaten or seek to enforce a contract
provision made unlawful under (1) or to penalize a consumer
for making any statement regarding their experience with the
seller or its employees or agents, unless the waiver was
knowing, voluntary, and intelligent.
3)Creates a civil penalty of $2,500 for the first violation and
$5,000 for subsequent violations, and makes a willful,
intentional or reckless violation subject to a civil penalty
of $10,000, all assessed under a civil action brought by the
consumer, the Attorney General (AG), or a local prosecutor.
4)Makes the civil penalty payable to the consumer or the general
fund of the agency bringing the action, as applicable.
5)Stipulates the above penalties are not an exclusive remedy
from any other relief provided by law.
FISCAL EFFECT
Potential minor costs to the AG and local prosecutors for
AB 2365
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enforcement, offset to some extent by revenue from civil
penalties.
COMMENTS
Background and Purpose . Non-disparagement clauses generally
restrict individuals from making statements or taking any other
action that negatively impacts an organization, its reputation,
products, services, management or employees. Non-disparagement
clauses are commonly found in legal settlement agreements
between employers and employees, where they can be negotiated
and understood by both parties, who are typically represented by
legal counsel. Recently, however, such clauses, which should
only be used when both parties understand their effect and truly
bargain for them, are finding their way into consumer
transactions.
With the advent of adhesion contracts in consumer transactions
on the Internet, most consumers purchasing goods and services
reasonably skip ahead to "check the box" at the end of the often
ten thousand word online document, otherwise known as
"click-wrap contracts," to complete the order. What consumers do
not realize is that they are typically agreeing to terms that
may be manifestly unfair and, in some cases, potentially muzzle
constitutional rights. California and federal law do not yet
make clear that such so-called non-disparagement clauses in
these consumer contracts are void and unenforceable. This bill
does so.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081