Open/Close Menu Constructive legal outcomes for construction and traded industry

You have built a good reputation for your business and have strong relationships with ongoing customers. However, you may have that one customer who has issued a negative review against you on social media, or is bad mouthing your business to others. You are concerned that this and any future reviews, will impact on your business and its growth.

One way businesses seek to protect themselves is through a non-disparagement clause.

1. What is a Non-Disparagement clause?

This clause would state that an individual or company cannot say anything negative about your business, its services and/or products, its employees, etc. through any mode of communication. So this could be via social media platforms or by word of mouth.

Typically such a clause would be found in employment contracts or in deeds of release that arise out of resolving a litigation.

A very simple non-disparagement clause could look this:

You agree that you will not disparage, directly or indirectly, or encourage others to disparage the company. This includes comments made in any matter or medium which would adversely affect the business.

2. Commercial contracts

You may have terms and conditions that you use for your company and are thinking of including a non-disparagement clause within it. If so you, you need to consider whether it can actually be enforced.

a. ACCC Power

The Australian Competition and Consumer Commission (ACCC) has the power under the Australian Consumer Law (ACL) to determine whether non-disparagement clauses used in standard business contracts are unfair terms and therefore void.

b. 101 Residential case

In 2017, a home building company, 101 Residential, had a non-disparagement clause in its annexure of its building contract. The clause prohibited its customers from publishing unapproved information or material that was disparaging or was harmful to the company’s business interests and included online posts, blogs and reviews.

The clause further stated that if there was a breach, the Company could remove the offending material and it could suspend the work on the customer’s building site or terminate the building contract.

The ACCC considered the clause to be an unfair term on the basis that it failed the 3 tests of the ACL. A term is considered unfair if (clause 24(1)):

(a) it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and

(b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and

(c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.”

As a result, 101 Residential had to undertake that it would not, for 3 years include a non-disparagement clause in its contracts.

Along with this case, there have been 3 others that were determined to have been unfair clauses.

3. Implementing an appropriate clause

Not all non-disparagement clauses are considered unfair terms, but the ACCC has a high threshold when it comes to determining when it is. The below are some factors to keep in mind if you intend on inserting a non-disparagement clause into your standard contract:

a. Keep it simple and clear as it would have a higher chance of being valid, than a complex and broadly drafted clause.

b. Imposing a penalty for breach of such a clause weighs heavily in the ACCC’s consideration of whether it is an unfair term. Either don’t have one, or if you want to include it, ensure it is not disproportionate.

4. Are there other ways to deal with negative comments?

Encourage your other customers to leave positive reviews on your website or on google reviews. This ensures that your business is painted in good light and any historical negative reviews are pushed down the listing.

Another option is to contact the customer who has been disparaging your business and have a polite discussion with them directly. Engage with them and consider whether the issue can be resolved with your goodwill. Converting a customer that has left negative reviews to one that is happy, will ensure a better review at the end of the day.

Another option is to undertake mediation. This is where you organise a meeting between the disgruntled customer and someone from your team to talk through the issue. If you require assistance to conduct the mediation, CLS has a qualified mediator in the team who could assist.

If you have questions on any of the above and/or require assistance with managing bad reviews, you can get in touch with us via admin@constructivelegalsolutions.com.au or 1300 632 247 or via our Contact Us page

CategoryBusiness, Legal
© 2021 Constructive Legal Solutions | Liability limited by a scheme approved under Professional Standards Legislation