CONSUMER

‘Gag clauses’ targeted by proposed bill

Jan 23, 2024, 10:12 PM | Updated: Jan 24, 2024, 6:36 am

SALT LAKE CITY — A contract clause called a “gag clause” was the focus on Capitol Hill Tuesday. Rep. Cory Maloy sponsored HB63, which passed a House committee unanimously and will now move forward.

The “gag clause” is already illegal on a federal level, but if the bill passes, it would become illegal, and unenforceable on a state level too. The clause was part of a KSL investigation in July 2023 after a man said he discovered the clause while attempting to build a home with a builder here in the state.

Unlawful gag clauses found in multiple Utah home builder contracts

He said the “non-disparagement” clause was so rigorous it prohibited buyers from saying anything negative about the builder. He ultimately didn’t sign the contract and didn’t continue business with that company.

The problem with the clauses, according to lawmakers, is that they don’t allow other customers to find out which companies have their best interest in mind, because anyone with a negative opinion is silenced.

“The clause said if you said anything negative about the builder, in public or private, the damages would be liquidated damages and a voiding of the home warranty,” Tony Capone said before a House committee Tuesday.

Capone is a business and technology attorney, so when he saw that verbiage, he found it to be a huge problem. The clause says buyers can’t talk, post, text or communicate any negative information about the company in any way, in public or private settings.

Katie Hass is the director of the Utah Division of Consumer Protection. She said making the clauses illegal on a state level makes fighting back faster for consumers, without going into litigation, which tends to be very expensive.

“As a federal policy, as a state policy, we stand behind the idea that people need to be able to speak freely about their experiences with businesses,” Hass said.

HB63 would also impose fines on companies that keep “gag clauses” in place. It passed the House committee unanimously Wednesday. It still needs to go before the House and the Senate. If it passes in all chambers, it will become a law on May 1.

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‘Gag clauses’ targeted by proposed bill