BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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                                    THIRD READING


          Bill No:  AB 2365
          Author:   John A. Pérez (D)
          Amended:  8/11/14 in Senate
          Vote:     21

           
           SENATE JUDICIARY COMMITTEE  :  6-1, 6/24/14
          AYES:  Jackson, Corbett, Lara, Leno, Monning, Vidak
          NOES:  Anderson
           
          SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8
           
          ASSEMBLY FLOOR  :  74-2, 5/15/14 - See last page for vote


           SUBJECT  :    Contracts:  unlawful contracts

           SOURCE  :     Author


           DIGEST  :    This bill prohibits a contract or proposed contract  
          for the sale or lease of consumer goods or services from  
          including a provision waiving the consumers right to make any  
          statement regarding the seller or lessor or its employees or  
          agents, or concerning the goods or services.  This bill makes it  
          unlawful to threaten or to seek to enforce, a provision made  
          unlawful under this bill, or to otherwise penalize a consumer  
          for making any statement protected under this bill and imposes  
          civil penalties

           Senate Floor Amendments  of 8/11/14 remove any reference to  
          knowing, voluntary and intelligent waivers, and clarify that  
          this bill shall not be construed to prohibit or limit any  
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          authority otherwise provided by law of a person or business that  
          hosts online customer reviews or comments from removing a  
          statement that is otherwise lawful to remove.

           ANALYSIS  :    Existing law, the Unruh Civil Rights Act, provides  
          that all persons in California are free and equal, and  
          regardless of a person's sex, race, color, religion, ancestry,  
          national origin, disability, medical condition, genetic  
          information, marital status, or sexual orientation, everyone is  
          entitled to the full and equal accommodations, advantages,  
          facilities, privileges, or services in all business  
          establishments.  

          This bill:

          1.Provides that a contract or proposed contract for the sale or  
            lease of consumer goods or services may not include a  
            provision waiving the consumer's right to make any statement  
            regarding the seller or lessor or its employees or agents, or  
            concerning the goods or services.

          2.Provides that it is unlawful to threaten or to seek to enforce  
            a provision of made unlawful by this bill, or to otherwise  
            penalize a consumer for making any statement protected by this  
            bill.

          3.Provides that any waiver of the provisions of this bill is  
            contrary to public policy, and is void and unenforceable.

          4.Establishes a civil penalty not to exceed $2,500 for the first  
            violation, and $5,000 for the second and for each subsequent  
            violation of provisions of this bill.

          5.Provides that the penalty provided by this bill is not an  
            exclusive remedy, and does not affect any other relief or  
            remedy provided by law. 

          6.Provides that this bill shall not be construed to prohibit or  
            limit a person or business that hosts online consumer reviews  
            or comments from removing a statement that is otherwise lawful  
            to remove.

           Background
           

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          A non-disparagement clause generally restricts individuals from  
          making statements or taking any other action that negatively  
          impacts an organization, its reputation, products, services,  
          management, or employees.  In other words, it is essentially a  
          provision in a contract requiring one or more parties to agree  
          not to make negative statements about the other party or parties  
          - a private party-enforced gag order of sorts.

          Earlier this year, a story was reported in the news about a Utah  
          couple's experience as a result of a non-disparagement clause,  
          highlighting how companies are using these clauses to prevent  
          customers from even speaking truthfully about their own personal  
          experiences.  Namely, it appears that in 2008, a customer by  
          name of John Palmer purchased Christmas gifts for his wife off  
          of a Web site, KlearGear.com.  The items never arrived and the  
          Palmers said the transaction was automatically canceled.   
          Reportedly, after repeated calls to the company to find out what  
          happened, the wife, Jen Palmer posted a review of the company on  
          another Web site, writing that "[t]here is absolutely no way to  
          get in touch with a physical human being.  No extensions work."   
          Then, some three years later, the couple received an email  
          appearing to be from the company, stating that the couple would  
          be fined $3,500 if the negative review posted on that other site  
          was not removed within 72 hours-all because they had seemingly  
          signed away their right to post a review online after agreeing  
          to the company's non-disparagement clause forbidding them from  
          taking any action that negatively impacts the company.  The  
          article notes that this couple is essentially "facing a $3,500  
          fine and a damaged credit score for doing what many people do  
          after a bad purchasing experience:  posting an online review."   
          Moreover, CNN reported that"[l]egal experts warn that more and  
          more companies are adding this type of language in the fine  
          print as protection," giving an example of a similar clause on a  
          vacation rental company that threatened a charge of up to  
          $10,000 for online reviews containing "unreasonable negative  
          sentiment" (though after a report about the clause aired, the  
          company removed it from its terms and conditions).  (See CNN,  
          Pamela Brown, Couple Fined for Negative Online Review (December  
          26, 2013)  
           [as of Jun. 16, 2014])  

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

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           SUPPORT  :   (Verified  8/12/14)

          California Retailers Association
          Consumer Federation of California
          Los Angeles City Attorney
          Public Citizen
          Public Good Law Center
          YELP

           ARGUMENTS IN SUPPORT  :    According to the author: 

            I have been disturbed to learn that non-disparagement clauses  
            are finding their way into various on-line contracts, such  
            those for vacation home rentals on websites such as VRBO.com.   
            However, HomeAway which owns VRBO.com does not have the power  
            to prevent property owners from including non-disparagement  
            clauses in the rental agreements.  Also, CNN recently reported  
            that a Utah couple has been involved in a dispute with an  
            online retailer, over a negative review the couple posted  
            online after a bad shopping experience. When the company  
            discovered the review, it sent the couple an email demanding  
            that they remove the review or pay a $3,500 penalty, claiming  
            that the couple violated a non-disparagement clause in the  
            "Terms of Sale" contract that they had accepted when they  
            checked a box to complete their online order form.          
                 
            Consumers should not be financially penalized for providing  
            honest on[-]line statements relative to their on line retail  
            transaction experience.  Honest feedback i[s] crucial to  
            assure consumer confidence in the on line retail environment. 

            Therefore consumers should not unknowingly or unwillingly give  
            up this right to speak freely about their on line retail  
            experience.  Such non-disparagement clauses go beyond an  
            embargo on business-oriented "trade secrets," but instead  
            represent an unreasonable limitation on individual freedom.   
            AB 2365 helps to ensure that this free flow of communication  
            occurs.  

           ASSEMBLY FLOOR  :  74-2, 5/15/14
          AYES:  Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,  
            Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian  
            Calderon, Campos, Chau, Chávez, Chesbro, Cooley, Dababneh,  

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            Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier, Beth  
            Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray,  
            Grove, Hagman, Hall, Harkey, Roger Hernández, Holden,  
            Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein,  
            Medina, Melendez, Mullin, Muratsuchi, Nazarian, Nestande,  
            Olsen, Pan, Patterson, Perea, John A. Pérez, V. Manuel Pérez,  
            Quirk, Quirk-Silva, Rendon, Ridley-Thomas, Rodriguez, Salas,  
            Skinner, Stone, Ting, Wagner, Waldron, Weber, Wieckowski,  
            Williams, Yamada, Atkins
          NOES:  Donnelly, Jones
          NO VOTE RECORDED:  Conway, Mansoor, Wilk, Vacancy

          AL:k  8/12/14   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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