Monday, May 3, 2010

Potential Employer Liability for Employee Endorsements Under FTC Guidelines

You may recall my earlier post, "FTC to Require Bloggers to Disclose Payments or Freebies for Endorsements," discussing the first update since 1980 to the FTC's Guides Concerning the Use of Endorsements and Testimonials in Advertising. That earlier post focused primarily on the guide's requirement that bloggers disclose any payments or in-kind donations (i.e., freebies) received in exchange for reviewing a product or service. But remember these new guidelines require disclosures of any "material connections" between endorsers and the advertised companies (i.e., connections between the endorser and endorsee). Material connections may arise as a result of some relationship other than just payment or free products directly in exchange for a positive review. For example, under the new guides, an employer could be liable for online communications by its employee if the employee touts a product or service offered by his employer, but fails to make clear he works for the company he's promoting or "endorsing."  The guidelines include the following example (Example 8 in the final rule):
An online message board designated for discussions of new music download technology is frequented by MP3 player enthusiasts. They exchange information about new products, utilities, and the functionality of numerous playback devices. Unbeknownst to the message board community, an employee of a leading playback device manufacturer has been posting messages on the discussion board promoting the manufacturer’s product. Knowledge of this poster’s employment likely would affect the weight or credibility of her endorsement. Therefore, the poster should clearly and conspicuously disclose her relationship to the manufacturer to members and readers of the message board.
It seems the new guides could potentially impose liability on employers for things their employees say online, even if the employer did not actually know those things were being said. The Commission seems to recognize that companies do not have control over all employee conduct. However, the FTC suggests that an employer may protect itself from liability if the employer has an appropriate policy governing social media participation by employees, clearly articulates that policy to employees, and consistently enforces that policy. The FTC explains:
With respect to Example 8 [laid out above], one commenter asserted that if the employer has instituted policies and practices concerning "social media participation" by its employees, and the employee fails to comply with such policies and practices, the employer should not be subject to liability. The Commission agrees that the establishment of appropriate procedures would warrant consideration in its decision as to whether law enforcement action would be an appropriate use of agency resources given the facts set forth in Example 8. Indeed, although the Commission has brought law enforcement actions against companies whose failure to establish or maintain appropriate internal procedures resulted in consumer injury, it is not aware of any instance in which an enforcement action was brought against a company for the actions of a single "rogue" employee who violated established company policy that adequately covered the conduct in question.
In sum, employees (as well as business owners or others with a material connection to a company) who use social media to endorse a product or service offered by their company should notify readers of their connection with the business they are talking about, and employers should implement or update social media policies to take into account the FTC guidelines.

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