BILL ANALYSIS Ó
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THIRD READING
Bill No: AB 2365
Author: John A. Pérez (D)
Amended: 6/12/14 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 provides that a contract or proposed
contract for the sale or lease of consumer goods or services is
unlawful if it includes a provision requiring the consumer to
waive his/her right to make any statement regarding the
consumers experience with the seller or lessor or its employees
or agents, unless the waiver of this right was knowing,
voluntary, and intelligent. This bill makes it unlawful for a
party to threaten or to seek to enforce a provision in violation
of the above, or to otherwise penalize a consumer for making any
statement regarding the consumer's experience with a seller or
lessor, or its employees or agent, unless the consumer has
knowingly, voluntarily, and intelligently waived his/her right
to do so.
CONTINUED
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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 is unlawful if it includes
a provision requiring the consumer to waive his/her right to
make any statement regarding the consumer's experience with
the seller or lessor or its employees or agents, unless the
waiver of this right was knowing, voluntary, and intelligent.
2.Provides that it is unlawful to threaten or to seek to enforce
a provision made unlawful under its provisions, or to
otherwise penalize a consumer for making any statement
regarding the consumer's experience with a seller or lessor,
or its employees or agent, unless the consumer has knowingly,
voluntarily, and intelligently waived his/her right to do so.
3.Provides that the party that drafted the waiver provision has
the burden of proving that the waiver was knowing, voluntary,
and intelligent. Provides that any waiver of the provisions
of this bill is contrary to public policy, and is void and
unenforceable.
4.Provides that any person who violates provisions of this bill
shall be subject to a civil penalty not to exceed $2,500 for
the first violation, and $5,000 for the second and for each
subsequent violation, to be assessed and collected in a civil
action brought by the consumer, by the Attorney General, or by
the district attorney or city attorney of the county or city
in which the violation occurred. When collected, the civil
penalty shall be payable, as appropriate, to the consumer or
to the general fund of whichever governmental entity brought
the action to assess the civil penalty. Provides that,
additionally, for a willful, intentional, or reckless
violations, a consumer or public prosecutor may recover a
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civil penalty not to exceed $10,000.
5.Provides that the penalty provided above is not an exclusive
remedy, and does not affect any other relief or remedy
provided by law.
6.Prohibits the above provisions from being construed to limit
any authority otherwise provided by law of a person or
business to remove an online consumer statement that is
libelous, harassing, obscene, vulgar, or sexually explicit,
contains the personal information or likeness of a person
other than the consumer, or violates the Unruh Civil Rights
Act.
Background
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
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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
SUPPORT : (Verified 7/30/14)
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
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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,
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 8/4/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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