FTC Guidelines May Create Company Liability for Employees’ Online Endorsements

In October 2009, the Federal Trade Commission (FTC) issued final guidelines, which became effective on December 1, 2009, regarding the use of “endorsements and testimonials” in advertising.  “Guides Concerning the Use of Endorsements and Testimonials in Advertising,” 16 CFR Part 255.  Under those guidelines, employees who use social media like blogs or Facebook to make statements about their employers’ products may create unintended legal liability for their employers if a consumer later claims to have been misled into purchasing an allegedly dangerous or defective product by such a posting. 

Under the guidelines, the FTC defines an “endorsement” as an advertising message that consumers are likely to believe reflects the opinions beliefs, findings, or experiences of a party other than a sponsoring advertiser.  An endorsement must not include any representation that would be deceptive if made directly by the sponsoring advertiser.  Further, the guidelines specifically state that companies are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers.  Importantly, the guidelines impose liability on endorsers and companies who fail to disclose “material connections” between an endorser and the company about whose products that endorser comments.

Therefore an employee who uses electronic media, including e-mail, blogs, or social networking sites, to make comments about a product made by his or her employer, and who fails to disclose his or her relationship with that manufacturer may create legal liability under the FTC guidelines.  Further, should a consumers rely on a particular comment in that posting to his or her detriment, any ensuing damage could be attributed to the manufacturer/company.  

A clearly written, widely distributed, and consistently enforced social media policy can help to avoid liability for violation of these FTC guidelines.  Because the guidelines are designed to protect consumers against misleading advertising and endorsements, a company’s written directive to its employees to avoid publishing “endorsements” that are misleading or in which the employee’s relationship to the company is not revealed can help to avoid legal liability. 

While the FTC’s own comments to the guidelines include a statement that the Commission would be “unlikely” to take action against a company for the conduct of a single “rogue” employee who violates a company’s social media policy via an illegal endorsement, that comment remains to be tested.  Should a non-compliant endorsement create broad consumer injury or damage, the endorser’s employer may find that it cannot escape associated liability under the new guidelines.  While guidelines themselves do not have the same force that a statute does, courts view them as an indication of how a law should be interpreted, and often act consistently with them.

Employers should review their written social media policies, and should assure that its employees are aware of the fact that the company has a concern and an interest in employees’ comments about company products.  Further, employers should take action when an employee acts in violation of an applicable social media policy, in order to insure its own credibility during a review of the situation by the FTC.