Compliance Update: The Consumer Review Fairness Act

GRA Blog , Legal , Restaurant Operations ,
By Joseph Sullivan, Partner at Taylor English Duma LLP

Frustrated by the increasing number of reservations for large groups not being honored, a high-end steak restaurant in Charleston decided it was time to take action. Rather than incur the significant costs associated with large swaths of unplanned empty tables, the restaurant resolved to institute a new rule for its customers: any dinner reservation for five or more guests would require the entry of a “dining contract.” That dining contract would impose a $50 per person fine if the reservation holder canceled the reservation within 24 hours of the time requested. No-shows would be subject to the same fee. The restaurant’s brainstorm sessions led to another idea, one it hoped would also increase its bottom line: include a clause in that same dining contract explicitly designating its right to institute a lawsuit for any negative reviews of its services. That dining contract is now illegal under federal law as a result of the Consumer Review Fairness Act (“CRFA”).

The CRFA went into effect approximately a year ago in an effort to thwart companies from contractually prohibiting their consumers from “disparaging” them in any manner, effectively preventing consumers from publishing anything negative about those companies online. The CRFA makes it illegal for companies to prohibit their consumers from leaving honest negative reviews and/or criticisms about their goods or services online. Previously, companies sought to avoid the consequences of negative online reviews by having their consumers enter into non-disparagement clauses as a part of the underlying business transaction. Now, such clauses are effectively null and void and will be considered to constitute an unfair trade practice. A violation of the CRFA can result in financial penalties and/or injunctive relief.

The restaurant industry, no stranger to the effects of negative online reviews, is very likely to feel the impacts of the CRFA. While in the traditional restaurant-guest transaction, there is no established contractual phase in which a guest enters into non-disparagement clause, some restaurants (like the one in Charleston referenced above) began to “test the waters” in connection with contractually limiting their guests’ ability to leave negative feedback on popular consumer websites like Yelp, Zagat, and Trip Advisor. 

Irrespective of whether such contractual clauses constituted sound business practices, they are no longer permissible. As a result, any restaurant utilizing such contracts should immediately communicate with their legal counsel to determine the proper steps to take to ensure compliance with the CRFA. 

Despite the passage of the CRFA, businesses operating in the restaurant industry will still be afforded the opportunity to seek damages against consumers (and, many times, other business competitors) who post false negative online reviews in violation of the law. 

Indeed, pursuant to the CRFA, it remains permissible to prohibit or remove an online review that:

  1. contains confidential or private information – for example, a person’s financial information or a restaurant’s trade secrets;
  2. is libelous, harassing, abusive, obscene, vulgar, or is inappropriate with respect to race, gender, sexuality, ethnicity, or other intrinsic characteristic;
  3. is unrelated to the company’s products or services; or
  4. is clearly false or misleading.

In other words, damages for defamation and libel remain, notwithstanding the existence of the CRFA. That being said, proving a guest’s assessment or opinion of a restaurant’s food or services meets the “clearly false or misleading” standard can be an elevated burden and, in many cases, the time and expense associated with such a litigation is not warranted.

To ensure your restaurant is complying with the CRFA, it is important to review your contracts, including online terms and conditions, and remove any provision that restricts customers from sharing their honest reviews, penalizes those who do, or claims copyright over such reviews (even if you’ve never tried to enforce it or have no intention of doing so). While it is frustrating to deal with less than positive online reviews, the best (and often, cheapest) remedy is to make a good faith assessment of where your restaurant can improve to make such reviews less frequent. 

About the Author
Joseph C. Sullivan is a partner at Taylor English Duma LLP (Atlanta), who counsels restaurants and other hospitality businesses in litigation matters. He may be reached at (678) 336-7284 or by email at jsullivan@taylorenglish.com