Consumer Review Fairness Act

The Consumer Review Fairness Act (the “Act”) became effective in March 2017 and has significant implications for most companies offering consumer products or services, especially for those with interactive websites.  The Act limits what companies can include in their standard contracts, including the terms and conditions of some websites.  Beginning on December 14, 2017, the Federal Trade Commission (the “FTC”) and state attorneys general will treat the use of contracts violating the Act as an unfair and deceptive trade practice, making it subject to potential financial penalties or other enforcement.

What Does the Act Do?

The definitions included in the Act are fairly technical, but in short, the Act protects consumer reviews of products and services when a purchase is made under a non-negotiated form contract.  To accomplish this, the Act prohibits the use of “form contracts” lacking meaningful negotiation and containing terms that (i) prohibit or restrict reviews of the seller’s products/services, (ii) impose a penalty or fee for such reviews, or (iii) transfer certain intellectual property rights in reviews. The Act also voids the provisions of any “form contracts” that do any of the foregoing.  However, the contracts can still prohibit the posting of certain content, such as trade secrets, confidential information, certain personal information, offensive language, and computer viruses, to name a few.

What Does the Act Apply to?

The Act applies to all “form contracts” used in the course of a sale to consumers that cannot reasonably be negotiated.  The Act never defines “goods and services,” so the Act has no real limitation on what type of seller it applies to.  It would seem to include websites that provide an interactive service for which they charge a fee as well as traditional sellers and service providers.  The Act also neglects to specify exactly what situations fall within the Act’s reach. It could include only contracts for sale, or it could also include terms of use for a website that advertises products or services.  While this is unclear from the Act itself, it would be safer to assume maximum applicability until we see how the Act is actually enforced.

Does the Act Prohibit Deletion of Social Media Posts or Other Reviews?

The Act never actually states that it is unlawful to remove reviews, but rather that it is unlawful to have “form contracts” restricting reviews in the manner described.  However, the FTC states on its website that the Act applies to social media (at www.ftc.gov/tips-advice/business-center/guidance/consumer-review-fairness-act-what-businesses-need-know).  The terms described in the Act do clearly seem to include posts on social media accounts.  Still, because there is no blanket restriction in the Act from removing reviews, the Act seems only to prevent companies from including terms in their “form contracts” that limit social media posts (or any other reviews described in the Act).  None of this seems to limit a company’s ability to actually delete social media posts, so long as none of the company’s “form contracts” restrict or prohibit covered communications.  However, it should be noted that the FTC may attempt to enforce this Act broadly, and courts have not yet had significant opportunity to interpret its reach.

Important Notes:

  • The Act covers any oral, written, or pictorial review, whether electronic or not. This includes more than just online reviews, although online reviews are likely to be the main area the Act will be applied.
  • The limitation against “prohibiting or restricting” reviews could apply broadly. Terms of use reserving a broad ability to remove or censor posts could violate the act, even if they do not specifically impose a penalty or restriction.
  • “Form contracts” can still transfer some intellectual property rights in reviews, so long as they meet the requirements of the Act.
  • The Act does not limit a business from bringing claims of defamation, libel, or slander over a review.

How Do I Comply with the Act?

  • Website terms of use and policies for sites that allow any type of reviews or customer comments should be reviewed and revised for compliance with the Act, even if the website does not have an e-commerce component.
  • All contracts with consumers that are (for all practical purposes) non-negotiable should be reviewed and revised for compliance with the Act. This includes most electronic contracts, such as e-commerce contracts, and paper contracts that are standard forms, such as pre-printed contracts used in over-the-counter sales or rentals.
  • Although it seems unclear at this point whether deleting negative social media posts could bring on an FTC enforcement action, the best practice would be to not delete any negative posts or reviews made by customers unless they are clearly false, misleading, or meet one of the other specifically permissible reasons. Although the Act does not specifically prohibit this, the FTC may view it as within the scope of the Act and may pursue such activity.  Even if you are ultimately successful in defending a challenge, that could be a costly and embarrassing fight.
  • To ensure best practices, you may consider developing an internal policy that meets these standards.

Contact us for more information on the Act or to get specific advice on how to comply. — Collin Atkins

Classifying Independent Contractors vs. Employees

One of the trickier questions of business law is the characterization of an individual as an independent contractor or an employee.  Many business owners wonder whether they are categorizing their workforce correctly or exposing themselves to potential liability for unpaid employment taxes to the IRS by mischaracterizing employees as independent contractors.  The determination of whether an individual is an employee or an independent contractor depends on the particular facts of each situation.  However, there are some general factors the courts look to in making this determination.

If It Walks Like a Duck…

Although not exhaustive, some of the main factors used to determine whether an individual is an employee or an independent contractor are:

  • the extent of control the business has over the work performed by the individual;
  • whether a formal contract is in place;
  • the permanency of the relationship;
  • whether the business provides any training;
  • the individual’s investment in facilities or tools;
  • whether the business reimburses expenses;
  • how and when the individual is paid;
  • whether the business provides any employment benefits;
  • the individual’s ability to make a profit or loss;
  • whether the arrangement is exclusive;
  • whether the individual holds his or her services out to the public; and
  • how integral the services are to the business as a whole.

While none of these factors is the exclusive determining consideration, the single most important consideration is the business’s right to control the work performed by the individual and, to a lesser extent, the degree of control actually exercised.  The more control the business has over how the individual completes his or her work, the more likely the individual is to be deemed an employee.  This makes sense if you consider it on a larger scale.  If you hire an outside company (rather than an individual) to perform a service, your primary focus is on the results of that service.  You likely have very little control over how the company’s workers dress, what they say, their methods and techniques, their timeliness (or lack thereof) each day, or any other individual aspect of how they do the job.  Your only real concern is what gets done and when it is complete.  You hire the company to perform a task (or set of tasks), and you pay them for its proper completion.

The courts think much the same way when determining an individual’s status.  If the company has the right to control the details of how an individual’s work is done, even if the company doesn’t feel the need to stringently exercise that control, the individual looks much more like an employee than an independent contractor.  Conversely, if the company has no right to determine or control the individual’s methods, the individual seems far more independent.  In the end, the courts try to determine, considering the situation as a whole, which label more truly describes the relationship.

The Importance of Using a Written Contract for Independent Contractors

In many situations, the desired relationship is truly that of employer/employee and it should be characterized as such.  However, parties that intend to form an independent contractor relationship often take actions that inadvertently change the analysis.  In these situations, a written contract is extremely important.  A formal agreement may only be one factor in the analysis of the courts, but using a written contract can go a long way in helping you meet the other relevant factors.  Not only can a contract clearly state the intention of the parties, it can also define the roles and the rights of each party, bringing more clarity to the overall analysis.  The factors considered by the courts can be addressed in a contract, declaring from the outset what the rights and obligations of each party are.

Although greatly helpful in clarifying the relationship, a contract cannot overshadow the actual conduct of the parties.  If the parties act as employer/employee, the courts will characterize the relationship as such, no matter what the parties claim.  However, a contract can help define the relationship for both the courts and the parties and can guide the parties’ conduct to avoid actions that unintentionally create an employer/employee relationship.  — Collin Atkins

Welcome to Our New Associate, Collin Atkins!

We’re excited to announce that Collin Atkins, a graduate of the Marshall-Wythe School of Law at the College of William and Mary, has joined our team as part of our expanding business law practice. Collin has spent the last several years working as in-house counsel, giving him an insider’s perspective into the needs of businesses and the legal pitfalls they face. Collin has drafted and negotiated a wide variety of commercial contracts and has advised businesses on issues ranging from formation, to employment issues and sales tax concerns.  With experience serving businesses at all stages of growth, Collin brings additional business expertise to our growing practice.  We are also pleased to offer our clients competitive business law rates for Collin where intellectual property specialization is not needed.

Collin Atkins