As we have discussed, last week California passed a law barring the use of non-disparagement clauses and providing a private cause of action for seeking or threatening to enforce one, or for "otherwise penaliz[ing] a consumer for making any statement protected under this section" (that is, a statement "regarding the seller or lessor or its employees or agents, or concerning the goods or services" the consumer purchased or leased).
In the Washington Post on Friday, Prof. Eugene Volokh of UCLA worried about the breadth of the law and posed the question, "Did California make it illegal for businesses to stop dealing with customers who insult them?"
In a word, no.
Prof. Volokh considers a hypothetical in which a company refuses to do business with a consumer who insults company employees virulently (for instance, using a racial epithet) and asks whether the company's refusal to do business would "otherwise penalize" the consumer for his speech and thereby violate the law. But the context and legislative history of the bill makes clear that it is not aimed at the "penalty" of refusing to do business with a consumer (if that is even a penalty at all — presumably where a consumer has criticized a particular business strongly enough that the business doesn't want her back, the feeling is mutual). The law was enacted in response to our KlearGear lawsuit, which concerned both a non-disparagement clause and subsequent retaliation by the business in the form of reporting a phony consumer debt to the credit reporting agencies. (The story is specifically recounted in the Bill Analysis.) Retaliation using a false credit report is a far cry from refusing to do business with a consumer who insults your employees, and I think common sense and the bill's legislative history will make that difference clear to courts that will be interpreting what it means to "otherwise penalize" a consumer within the meaning of the California law.
Prof. Volokh additionally worries that California's ban disables businesses from bringing defamation suits against consumers for false and defamatory speech, under the theory that such a suit, too, would "otherwise penalize" a consumer for his speech. This concern is put to rest by the savings clause — subsection (e) — of the new law, which provides (among other things) that it "does not affect any other relief or remedy provided by law."
As Ted Mermin has suggested on this blog, other legislatures around the country should consider adopting California's law as an important protection for consumer speech. They should not be deterred by Prof. Volokh's hypotheticals.