Although an increasing number of employees are “tweeting” on Twitter and posting on Facebook, employers have been relatively slow to establish policies that would protect them from potential liability stemming from their employees’ participation in social networking sites and personal blogs. Employers that have been apathetic to this phenomenon have found themselves caught up in expensive lawsuits resulting from their employees’ activities on these sites – regardless of whether their participation is on the job or during their off hours – in the context of sexual harassment and hostile work environment claims, for publication of defamatory statements, and for disclosure of confidential information to the public. While these risks are widely discussed in the news media today and courts are hearing an increasing number of these types of cases, the government has already stepped in to proactively address another largely unforeseen risk – employer liability for an employee’s online product endorsements.

The Federal Trade Commission (“FTC”) recently issued new guidelines revealing the potential for employer liability for false or misleading advertising stemming from employees’ online postings about their employers’ products or services. The new FTC guidelines, which went into effect on December 1, 2009, may impose liability on businesses for statements their employees make on social networking sites like Facebook, Twitter, LinkedIn, MySpace, personal blogs, and other sites, even if the employer had no actual knowledge those statements were being made.

The guidelines address the application of Section 5 of the FTC Act (15 U.S.C. 45) to the use of endorsements in advertising, including advertising achieved through “new media” such as blogs and social-networking sites. An “endorsement” is defined as any advertising message that consumers are likely to believe represents the opinions or experiences of a party other than the sponsoring advertiser. Under the guidelines, a business that pays the party making the endorsement or that has an ongoing relationship with that party can be held liable for false or misleading statements made by the endorser about the business’s goods or services or for the endorser’s failure to disclose the relationship between the endorser and the business, even if the business has no control over the content of the endorser’s statements.

The new guidelines raise significant liability concerns for an employer when its employees promote the employer’s products or services on their personal blogs or social-networking pages. The Commission provided examples of the application of Section 5, including illustrations that could lead to potential employer liability. One such example specifies liability for an employee’s blog posting concerning his employers’ product, where the employment relationship is not previously disclosed:

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. 16 C.F.R. § 255.5, example 8. The guidelines have consequences beyond FTC enforcement actions because violations can spur consumer protection lawsuits by state attorneys general and consumer-driven class action lawsuits, even though the guidelines do not have the force and effect of law.

In comments to the proposed revisions, the Commission agreed that the establishment of appropriate procedures governing “new media” would be a factor in its determination as to whether law enforcement action is appropriate. Tellingly, the Commission stated that it has brought enforcement actions against companies “whose failure to establish or maintain appropriate internal procedures” had resulted in consumer injury. The Commission refused to spell out the procedures companies should put in place to monitor compliance with the principles set forth in the guidelines, leaving companies to determine for themselves the process that would best fulfill their responsibilities.

While the Commission’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.

In light of the new FTC guidelines as well as the growing body of case law regarding employer liability for the statements of their employees on these “new media” sites in other contexts, employers should be looking to adopt social media and blogging policies. A clearly written, widely distributed, and consistently enforced social media and blogging policy can help to minimize liability for violation of these FTC guidelines. Those policies should articulate the types of disclosure employees must include when they discuss their employers or their employers’ products or services as well as prohibit the publication of any misleading statements. 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.