In light of a new California decision interpreting California’s wage and hour law, brand companies should take a careful look at their influencer compliance programs not only for FTC compliance, but also potential employment law consequences. How a company establishes and maintains influencer compliance can potentially convert the influencer from an independent contractor to an employee.
We know the FTC’s view is that it takes a village to ensure influencers disclose any material connection to a brand company with which they have a relationship and that the Commission will hold brands, agencies, influencer networks, and influencers all responsible for compliance lapses. The basic expectation is that brands will train their influencers on the rules of the road, monitor for compliance, and enforce consequences for noncompliance. The consent orders in cases like CSGOLotto, Inc. lay out more detail as to what the FTC expects, including:
- Providing each influencer with a clear statement of responsibilities for including clear and conspicuous material connection disclosures and obtaining signed statements from each influencer acknowledging receipt and consent;
- Establishing, implementing, and maintaining a system to monitor and review influencer posts; and
- Immediately terminating and ceasing payment to any noncompliant endorser.
The FTC has made it clear that even brands running their programs through ad agencies or public relations firms are ultimately responsible for what others do on their behalf, and should make sure that they have “appropriate program[s] in place to train and monitor” influencers. Companies that have established such programs have avoided formal FTC action, while other companies without them have found themselves under order, with the threat of civil penalties for future violations. In the last few years, most responsible companies have given thought and attention to developing such a robust program. The typical view is that more brand control provides more FTC security.
But, from an employment law perspective at least, there may be such a thing as too much control. Recently, in a case entitled Dynamex Operations West, Inc. v. Superior Court, the California Supreme Court (the “Court”) issued a decision that is likely to have a significant impact on the question of who is an independent contractor vs. who is an employee question. Long story short, the Court disapproved of a longstanding multi-factor test in favor of a three-factor test. Specifically, as stated by the Court, the going-forward rule is that individuals providing services are presumed to be employees unless the hiring business demonstrates that the individual satisfies each of three conditions:
- The individual is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract and in fact;
- The individual performs work that is outside the usual course of the hiring entity’s business; and
- The individual is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
In most cases, it appears influencers will readily satisfy the second and third prongs vis-a-vis brand companies—most companies do not directly employ full-time influencers, and the influencers are in the business of providing independent influencer services generally. The first prong—free from direction and control, under the contract and in fact—is where the new California decision may be a cause for concern.
Most simply stated, the test is whether the purported contractor is responsible to the business entity solely for the final product (and thus, a bona fide contractor), or also for the manner and methods by which final product is delivered (and thus, a misclassified employee). Here, we are not talking about policies regarding dress code, timekeeping, telephone etiquette, and/or attendance. Unlike policies designed solely to facilitate operation, policies requiring adherence to state and federal law may be applied to employees and contractors alike, without running afoul of proper classification (e.g., policies against sexual and other unlawful harassment). It is safe to say a business entity may condition its relationship with vendors and contractors on those vendors and contractors observing and complying with federal laws impacting the entity’s licensure and/or right to do business.
The question, then, becomes: “how does a brand company balance the need for ‘freedom from direction from control’ under Dynamex with the FTC’s statements that brand companies must ‘train’ influencers in how to comply with the FTC’s requirements under the Endorsement Guidelines (or at minimum provide them with a clear statement of responsibilities for including clear and conspicuous material connection disclosures and obtaining signed statements acknowledging receipt and consent)?” To date, some brands may have taken a one-size-fits all to approach to compliance in that area and simply applied their employee social media policy to influencers through their contracts. Post- Dynamex decision, brands doing business in California should taking a fresh look at their influencer requirements and how to balance the need for FTC compliance with developing employment law considerations. This is a topic that will likely deserve ongoing assessment.