A targeted change to California law will prohibit non-disparagement and similar confidentiality clauses in consumer settlement agreements and refund policies. Starting January 1, 2025, businesses settling disputes with consumers cannot condition any refund or other consideration on a consumer agreeing not to make statements about the business, regardless of the sentiment or accuracy of those statements. The text of the new Cal. Civ. Code § 1748.50 can be found here.

Understanding the Change

On its face, the newly enacted law appears to focus more on egregious consumer refund policies than on settlement agreements in the context of escalated disputes and litigation. A deep dive into its legislative history suggests that it is intended to cover both scenarios.

On one hand, the legislature considered reports about consumer refund policies. Legislative reports cited a case where a company did not allow consumer refunds for defective products unless the consumer signed a non-disclosure agreement, deleted all negative social media comments and reviews, and agreed not to tell anyone about the refund they got.

On the other hand, the legislative reports suggest the new law could extend to clauses in more formal consumer settlement agreements following actually litigated suits. They cited another case where an individual consumer who was charged for his cable service after cancelling ultimately settled a lawsuit with the company. The company conditioned the settlement on the consumer’s agreement not to disclose any of the parties’ negotiations or the terms or amount of the settlement.

Implications for Businesses

Settlement agreements in consumer protection cases frequently prohibit the parties from speaking publicly about the settlement. These provisions often stem from companies’ legitimate reputational concerns that consumer litigants or their attorneys will point to settlements as “proof” that the company did something wrong. Public knowledge of a settlement can create additional risk for companies by encouraging follow-on suits for similar claims, regardless of their merit.

Here are a few steps businesses can take to navigate this change effectively:

1. Legal Review and Update: Conduct a comprehensive review of all consumer settlement agreements and refund policies to identify and remove non-disparagement clauses.
2. Training and Awareness: Ensure that legal teams and customer service representatives are well-versed in the nuances of the new law to prevent inadvertent violations.
3. Embrace Transparency: View this legislative change as an opportunity to foster a culture of transparency and open dialogue with consumers. Encouraging honest feedback can be a catalyst for improvement and innovation.

Putting it into Practice

This change is a reminder of the evolving nature of consumer rights, particularly in California. In light of this legislative change, businesses should review and update their standard refund policies and consumer settlement agreements to ensure that they are in compliance with California law come 2025.