Dude, Where's My Disclosure? Don't Get Punk'd by FTC Regulation of Employee Social Media Use

09/01/2011

As Ashton Kutcher has learned, the Federal Trade Commission takes online endorsements seriously. Recently, the actor and avid Twitterer edited an online issue of Details magazine that plugged several technology start-ups without clarifying that Kutcher had invested in many of them. Kutcher also endorses many of these companies on his Twitter account, which boasts almost 7.5 million followers. Kutcher’s online endorsements gathered headlines when a Federal Trade Commission (“FTC” or the “Commission”) official remarked that this practice might run afoul of the FTC’s endorsement guidelines, and stated that it was “certainly a possibility that a case like this could be investigated.”1 Although the FTC later clarified that it had no plans to investigate Kutcher, this controversy remains a good example of the FTC’s focus on online endorsements, which employers should keep in mind when developing a social media policy.

Online Endorsers Must Disclose “Material Connections,” Including Employment Status

In 2009, the FTC revised its Guide Concerning Use of Endorsements in Testimonials in Advertising to address the changing media landscape. The revised Guide requires full disclosure of any “connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement.”2 The FTC’s Guide regulations list the following example of a “material connection” necessitating disclosure:

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.3

As this example makes clear, employees must disclose their employment status before discussing their employers’ products on social media sites. Similarly, employees should avoid online discussions regarding their employers’ clients without disclosing this connection. In late 2010, a public relations firm faced deceptive advertising charges from the FTC when it instructed employees to pose as ordinary consumers and post game reviews on the iTunes store’s website without disclosing that the game developers had paid their employer to promote their products.4

Consistently Enforced and Appropriately Drafted Social Media Policies Likely Shield Employers

The FTC has indicated that a consistently enforced social media policy, which should be well-drafted, will weigh heavily in an employer’s favor should an employee fail to disclose his or her employment status while endorsing the company online. The FTC’s comments accompanying the publication of the revised Guide acknowledged the value of a social media policy when discussing one commenter’s argument 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.”5

Although the FTC did not categorically endorse this view, it strongly suggested that a social media policy will likely protect an employer from enforcement actions, just as a failure to institute such a policy would weigh against employers. The Commission noted that “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.”6 However, the Commission declined to “spell out the procedures that companies should put in place to monitor compliance.”

Conclusion

Employers may be subject to FTC enforcement actions if employees discuss their employers or employers’ clients in social media forums. However, the FTC has strongly suggested that a consistently enforced social media policy will provide employers considerable protection. For maximum protection from FTC actions, the policy should require employees to disclose their employment status before discussing the company’s products or clients online. To avoid confusion arising from this practice, employers should also consider requiring employees to disclaim any authority to speak on the companies’ behalf.

More Information

For more information, please contact one of the Haynes and Boone, LLP lawyers listed below. Also, we encourage you to take a look at our new Social Media Practice, a cross-sectional group comprised of more than 40 attorneys. You may also view the alert in the PDF linked below.

Matthew T. Deffebach
713.547.2064
matthew.deffebach@haynesboone.com

Alex Stevens
214.651.5475
alex.stevens@haynesboone.com

David A. Bell
214.651.5248
david.bell@haynesboone.com


PDF - FTC_Regulation_Employee_Social_Media.pdf
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1 Nick Bilton, “Ashton Kutcher Could Face Questions About Disclosure,” Bits Blog, NEW YORK TIMES (Aug. 19, 2011, 1:30 PM), http://bits.blogs.nytimes.com/2011/08/18/ashton-kutcher-could-face-questions-about-disclosure.
2 16 C.F.R. § 255.5
3 Id.
4 See FTC News Release: FTC Approves Final Order Settling Charges That Public Relations Firm Used Misleading Online Endorsements to Market Gaming Apps (Nov. 26, 2010).
5 Notice of adoption of revised Guides Concerning the Use of Endorsements and Testimonials in Advertising. 74 Fed. Reg. 53136 (Oct. 15, 2009) (codified at 16 C.F.R. § 255).
6 Id.

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