The Impact of "Yelp Protection" Laws on E-Commerce

In September, Governor Jerry Brown signed California Assembly Bill No. 2365, the “Yelp Protection” bill, into law. AB-2365 bans disparagement clauses in businesses’ terms of agreement that would prohibit customers from leaving negative comments on review sites like Yelp.
Some businesses have gained some undesirable media attention for trying to enforce those clauses, including one New York hotel that tried charging $500 fines for each bad review left by members of wedding parties. Some restaurants have also pursued legal action against negative reviews.
Trying to forbid honest reviews is an obvious violation of a consumer’s First Amendment rights, but what is a small business to do in the face of an unfair or dishonest negative review? The state’s decision has big implications for consumers and businesses in California. We talked to a few leading e-commerce professionals to get their perspectives on what the new law will mean and what businesses should do about it.

The Silver Lining for Businesses

A lot of California business owners are a little edgy about how the new protections will affect their industries and their businesses in particular. Even the best have bad days, and slander — especially on the social web — can do big damage.
But it’s not all bad news. There are plenty of benefits to businesses when consumers are free to review without fear.
emma-kaneInternet and ecommerce consultant Emma Kane has 20 years of experience in her field, and has worked with giants like and MTV. Kane hopes the new law will inspire businesses to just continue getting better at what they do.

I think that the freedom of consumers to leave honest reviews without fear of intimidation will ensure companies work even harder at keeping their customers satisfied. – Emma Kane

Darren-DeMatasOthers have even higher hopes. Darren DeMatas is the Founder of ecommerce consulting company Intertwine, and has more than a decade of experience working with companies of all sizes. Joshua Warren is the Founder of Creatuity, a consulting firm made up of over 25 ecommerce specialists. DeMatas and Warren both foresee the “Yelp Protection Law” leveling the playing field for businesses in a couple different ways.

In general, these new laws give an edge to ecommerce companies that are dedicated to superior customer service. In a world dominated by big brands, there is a unique opportunity for smaller ecommerce companies to build a niche brand and capture market share. Companies that go above and beyond will benefit from increased visibility online and maximized customer lifetime value. Companies that have short-term “churn and burn” plans will not be able to succeed, and they will get quickly weeded out. Hopefully these new laws will serve as a wake-up message that customer-centric businesses are the only ones that will thrive. – Darren DeMatas

In addition to giving small and medium-sized companies more of a fighting chance, Warren anticipates a big benefit to honest companies of all sizes.

These laws really help level the playing field for honest businesses. Most e-commerce companies have been open to reviews on sites like Yelp, and haven’t even thought to attempt to restrict their customers from reviewing them on Yelp. A few bad actors were attempting to do so, which may have led to those bad actors having better Yelp ratings than the other businesses that weren’t engaging in this behavior. – Joshua Warren

Honest businesses that are doing their utmost to serve their customers well have little to worry about. The good guys might even rejoice that dishonest competitors — especially those with bigger budgets and/or more influence — can no longer hide or persecute honest negative reviews to falsely improve their online reputation.

The Lingering Threat

Still, it’s not all good news. There are two sides to every story — in a state assembly, or on a restaurant floor. Some business owners are concerned that AB-2365 will give unfair advantage to dishonest negative reviews to the severe detriment of their business.
jeff-varnerPure-Ecommerce Co-Owner and Managing Partner Jeffrey Varner has been in ecommerce for over 12 years and, together with his wife, is now helping other business owners realize their own dreams. He echoes the concern of many business owners, and has experienced the fallout of an unfair, negative review firsthand.

While putting clauses in contracts threatening to fine customers is not the answer, the reason for these types of clauses is that ecommerce business owners’ hands are currently somewhat tied.  Now, anyone can go on complaint boards or any of these sites, and post a positive or negative review for any reason and with no accountability. We have a good reputation and have worked hard to stay that way, yet this happened to us. We had to vigorously defend ourselves to preserve that reputation. There are always two sides to every story, but if someone goes onto one of these boards and says something negative, it stays there unless you pay the high fees some sites offer. These negative reviews can affect your business greatly and often unfairly. – Jeffrey Varner

While Kane hopes the law will inspire businesses to do better, she agrees they may also inspire damaging results.

There is a risk of reputational damage from undeserved or vindictive poor reviews, so I think the right of reply is important here too. – Emma Kane

DeMata has witnessed a broad scope of slanderous activity on review sites as well, and agrees that businesses need some recourse.

Online reviews need regulation. Over the last decade, I have seen baseless negative reviews from customers that confused one company for another. I have also seen reviews from fake profiles as part of a negative local SEO campaign. There are entire businesses built around creating fake reviews, positive and negative. This has to be dealt with from a legal standpoint. – Darren DeMata

Warren has been working with ecommerce businesses of all sizes for 15 years, and his experience warns that some industries are at a greater risk than others.

Some industries are more prone to negative reviews — for instance, any e-commerce company selling products used at weddings, birthday parties, and other sentimental events will tend to have more passionate reviews in both the positive and negative directions. – Joshua Warren

In a perfect world, AB-2365 be great news for transparent, genuine businesses, and bad news for shady, dishonest ones. Unfortunately, people sometimes make mistakes, as DeMata points out, and sometimes people leave unfair negative reviews in the height of their passionate frustration. Sometimes competitors are so desperate that they aren’t beneath online smear campaigns.

Something need to change in the review process, but it is a slippery slope. Customers need to be held responsible for their words. We need a transparent system that give customers an opportunity to share their complaints, and businesses a chance to respond. The Better Business Bureau is a great example of a system that works. Laws that protect customers’ right to review are important, but we need to move towards a system with true accountability and transparency that balances and protects the rights of all parties. – Jeffrey Varner

Most businesses will respond to the Yelp Protection law by going above and beyond, but it’s probably not a perfect solution for the digital marketplace.

What Should Businesses Do?

Hopefully a better system is on the horizon, but what’s a business owner to do in the meantime? DeMata has great advice for the business with digital marks against them.

If you are a small business with an illegitimate negative review, do your best to respond immediately by asking the customer for more information. Let them know that you don’t recall the incident, and you want to make it right. Honesty, transparency, and consistency will eventually win out. – Darren DeMata

Warren agrees, and even suggests consider bad reviews a form of constructive criticism.

The behavior that led to this law — attempting to punish customers who left negative reviews — is an attempt to address a symptom of a dissatisfied customer. Instead of trying to block these dissatisfied customers from leaving reviews, be glad that they’re making you aware of their discontent. Reach out to them, offer to make the situation right, and in many cases you can turn an upset customer into an ambassador for your brand. It’s much better to be aware of their complaint and to address it, than attempt to sweep it under the rug. – Joshua Warren

Finally, it’s often said that the best defense is a good offense. Kane brings it all back to customer service.

An experienced, dedicated customer service person or team to escalate problems to just became key. It’s much easier to placate a customer and sort [out] the problem in the early stages, than it is to remove a bad review. – Emma Kane

Do what you do best, and do it better than you ever have. Focus on the customer, create a great experience, and you’ll most likely never have to deal with a bad review. If you do get one, though, try to keep your defenses down until you’ve talked to the customer and tried to resolve it. Consider a bad review an opportunity rather than a threat, and you might get much further.

Yikes, It’s Yelp!

For most businesses, AB-2365 hasn’t really changed much. Most brands have not been trying to prevent negative reviews, or taking legal action against them if and when they do happen. Most businesses have been trying to serve their customers as best as they can, and have been reaching out to the dissatisfied ones at every opportunity. Stay humble and honest — encourage your regulars and your satisfied customers to leave positive reviews — and you’ll most likely win the day.