A non-disparagement clause in a commercial contract discourages one party from saying bad things (whether or not true) about the other party. The clause is common in litigation settlement agreements and employee termination agreements. In the latter, the purpose of a non-disparagement clause is to prevent the former employee from criticizing their former employer after the discontinuation of employment. In a litigation settlement agreement, this clause is included so that new customers (or vendors) won't be discouraged from doing business with the settling parties.
As a general rule, a non-disparagement provision in a non-consumer contract is valid and enforceable. But damages resulting from their breach may be difficult to prove, because what is your reputation worth before compared to after the provision has been breached? You would likely be forced to hire expert witnesses to testify about reputational damage substantiated by customer or social media surveys; in the end, the amount spent on these expert witnesses may well exceed the monetary damages sustained. So non-disparagement clauses have more of a psychological deterrent value than anything else. Yet lawyers throw them in the contractual mix for good measure. And that practice isn't likely to change.
The flip side of a non-disparagement clause is a customer recommendation or reference clause. This clause is common in software development and license agreements and provides that the customer will act as a positive reference for the vendor's potential customers. The customer's obligations may include agreeing to take calls (or accept in-person visits) from the vendor's prospective customers to explain the benefits of the vendor's product, appearing at trade shows to promote the vendor's product, or help the vendor write a publishable "white paper" about how the vendor's product has provided the customer with a good return-on-investment.
It's easy for the customer (or their lawyer) to routinely agree to this provision without thinking about the time it will take for their client to diligently comply.
But these obligations can be a "time sink" for the vendor's customer. That is why I always recommend that there be a quid pro quo, i.e., that the vendor give the customer value for its agreement to act as a reference. This consideration may consist of free travel to vendor user conferences, membership on a "super-user" vendor advisory committee, or product discounts. If I'm representing a customer and the vendor won't agree to make my client's role as a reference worthwhile, I ask that the customer reference clause be deleted. Usually, this prompts the vendor to come back with something that makes my client's participation as a reference worth their time. If I'm representing the vendor, I tell the customer's attorney that the customer's agreement to act as a reference has already been priced into the deal, and so only a small extra benefit is required, such as free passes to the vendor's user conferences. This usually does the trick.
This brings up the final point to this post. If you do business with John Q. Public (as in "consumers"), it's always a poor strategy to require them to "like" you on Facebook. Consider the recent case of a Salt Lake City landlord who tried to contractually require its tenants to "like" it on Facebook or be considered in breach of their leases. Not only did this provision cause a fierce backlash against the landlord, but a court would have a hard time enforcing this provision on any number of legal grounds, including being discriminatory against tenants who don't have computers or access to Facebook. And arguably the provision is unenforceable because of the disparate bargaining position between the landlord and its tenants. The lawyer who advised the landlord that this was in any way a good business or legal approach should receive 40 (or more) lashes with a wet noodle!
Do your contracts contain non-disparagement or customer reference clauses? Do you think that they have any value? I'd like to know.
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