Contracting Consequences: How Not to Use Agreements to Manage Your Company’s Reputation

Contract law has been in the headlines recently, due to the unpopular contracting practices of both small and large businesses. In two notable instances, consumers were forced, under the terms of agreements they signed, to suffer negative consequences after they or their friends posted negative views on social media. This treatment and arrangement has generated public outrage and, predictably, tarnished the reputation of the companies involved. Going into the future, companies should be mindful of the negative publicity that can result from unpopular contracting practices.

The most popular story on this topic comes out of New York, where the Union Street Guest House came under fire when it charged couples $500 for every negative review posted online by the couple’s wedding guests. The Guest House thought that by charging its customers every time the customers post negative reviews, it could best manage its public reputation. Unsurprisingly, once one wedding couple was charged a few thousand dollars, word got out, and it wasn’t pretty. Far from limiting negative reviews, the Guest House’s Yelp page (among other online social media review site pages) exploded with hundreds—at one point, thousands—of 1 out of 5 star reviews. Even after Yelp removed most of the reviews, the Guest House still has only 1.5 stars on Yelp. This is a great example of how a covenant in a contract requiring customers to pay for unwanted behavior can hurt a business more than help it.

In Denver this week, a Minnesotan man and his family were asked to leave a departing Southwest Airlines flight after the man posted a tweet criticizing Southwest’s boarding policies. He posted, in all caps, “Rudest agent in Denver. Kimberly S. Gate C39. Not Happy @SWA.” The tweet was quickly reported to a supervisor, who told the man that he had to delete the tweet if he wanted to be on the flight. Just as the Guest House faced public backlash, so too is Southwest facing criticism on the national media stage.

Both these stories highlight the importance of customer-friendly contract drafting. Even if a clause might be enforceable in court—for example, reasonable liquidated damages clauses or covenants that require pre-determined charges for certain behavior—does not mean that a company should use such a provision. Notwithstanding the possibility that such provisions are unenforceable, contracting practices that punish consumers often hurt the company dearly, in the form of negative publicity and decreased goodwill. A far better strategy for increasing customer loyalty and goodwill is to create provisions that incentivize, encourage, and reward customers for promoting the company’s services. What if, instead of punishing a wedding couple for negative reviews, the Guest House offered the wedding couple some extra “congratulations cash” for posting positive reviews or arranging for party guests to remove negative reviews? What if Southwest relaxed its boarding procedures for customers with families if the customers posted a positive tweet about their boarding?

With the help of experienced, business-minded counsel, your company can avoid damaging contracting strategies, while also increasing brand loyalty and customer satisfaction. With the right consumer-centric contracting strategy, your company can expertly manage its public reputation online in enforceable and friendly ways.


This article was sponsored by Vlodaver Law Offices, LLC, an experienced business solutions and transactions law firm in the Twin Cities. If you would like a free legal consultation, contact us.