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Legislative Update and Non-Disparagement Clauses in Contracts

Today, I read an article published in the ABAJournal titled: In bid to protect online reviews, Congress OKs bill banning gag clauses in consumer contracts 

According to the ABAJournal:

“Congress has passed a bipartisan bill that aims to protect negative online reviews by banning nondisparagement clauses in nonnegotiable consumer contracts.”

It appears that this legislation is intended to protect consumers (as opposed to business-to-business).

I have previously delved into the topic of non-disparagement clauses.

1. Non-Disparagement Clauses in Settlement Agreements.

Often times as part of a confidential settlement agreement, the parties to a dispute will agree not to “disparage” each other.

Disparage – as you will see below – has a fairly common meaning.

‘Disparagement’ is ‘a false and injurious statement that discredits or detracts from the reputation of another’s property, product, or business.’ Black’s Law Dictionary (7th ed. 1999).

stated another way:

(1) To speak of in a slighting or disrespectful way; belittle. (2) To reduce esteem or rank.’ . . . American Heritage Dictionary (4th Ed. 2000)

2. Michigan Case Law Concerning “Non-Disparagement Agreements”

Rarely have I ever seen a non-disparagement clause become an issue. In fact, a review of Michigan case law supports this – I found only a handful of cases in Michigan where the parties litigated over one party’s alleged “disparagement” after a settlement agreement was entered.

One such case was the 2011 case of Sohal v. Mich. State Univ. Bd. of Trs. & Davoren Chick M.D., 2011 Mich. App. LEXIS 915, *12-14, 2011 WL 1879728 (Mich. Ct. App. May 17, 2011).

There, Plaintiff,  a participant in MSU’s internal medicine residency program, entered into a “resignation and settlement agreement” with MSU under disputed circumstances. The Agreement contained a “non-disparagement clause”.

Plaintiff sued and argued that Defendants breached the non-disparagement clause, entitling him to “rescind” the Agreement (and therefore sue under all of the laws that he would have otherwise waived).

One of Plaintiff’s arguments was: “the word “non-disparagement” is ambiguous. (If you’ve read my previous post you can understand why this argument does not win the day.)

The Court was not convinced. It held:

“the term “disparage” in the non-disparagement clause is not ambiguous. While plaintiff attempts to ascribe several “reasonable” meanings to the term “disparage,” and thus the non-disparagement clause, the term fairly admits of but one interpretation.” Citing Meagher v Wayne State Univ, 222 Mich App 700, 722; 565 NW2d 401 (1997).

As the Court noted, “Other state courts have determined that the term “disparage” in non-disparagement clauses of settlement agreements are unambiguous.” (citations omitted).

In closing – non-disparagement clauses are standard clauses (but not universally used). Courts have consistently held that “Disparage” is a plainly understood term. It isn’t an ambiguous term.

Questions?

Comments?

e-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka

http://www.dwlawpc.com

 

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