Publication

November 29, 2011Client Alert

Social Media and Corporate Compliance

The emergence of social media has fundamentally changed corporate life in ways that are just beginning to be discovered. Social media is no longer just an interesting technological showcase; it is a powerful social and cultural phenomenon while at the same time being among the most disruptive technological forces in society today. In light of the fact that nearly 70% of companies use social media for branding engagement and awareness, social media use and corporate compliance issues just can’t be ignored. Following are key topics to consider when engaging in or reacting to social media activity: 

 

General

 

  • Social Media Use Policy. Draft a formal policy related to social media use and develop a governance system to manage the online activities of employees on social networking sites when such activities occur during working time and/or on company resources or when such activities have a direct impact on the workplace. Each policy will look different from employer to employer. The policy should address such items as privacy issues, discriminatory and harassing posts that run afoul of state and federal anti-harassment and non-discrimination laws, defamatory, threatening and harassing statements about the company, coworkers, customers, vendors and competitors, restrictions on the disclosure of confidential and proprietary information as well as trade secrets, and endorsement of the company’s products or services to name a few.
  • Document Retention Policy. Update your document retention policy to ensure it corresponds with your social media policy. Make sure your business captures and stores your corporate social media activities.

 

Corporate and Securities Issues

  • Regulation FD. Regulation FD attempts to level the playing field for all investors by regulating how public companies can disclose material non-public information to outside persons if those persons include securities professionals or stockholders. The rule provides that when a public company, acting through specified persons (senior officials or other employees or agents who regularly communicate with securities analysts or investors) discloses material, non-public information to specified categories of persons (securities market professionals and stockholders) then the public company must disclose that information simultaneously for intentional disclosures and promptly for unintentional disclosures. Make sure your use of social media complies with Regulation FD.
  • SOX Compliance. Review your Sarbanes-Oxley Act (“SOX”) compliance program to ensure that financial information posted on your Facebook fan page, Twitter, website, etc., is updated to reflect material changes in financial condition and operations and thus complies with SOX Section 409.
  • FTC Endorsement Guidelines. The Federal Trade Commission (“FTC”) has issued guidelines stating when statements made on social media posts and in blogs constitute endorsements and testimonials. Even if an individual is not specifically engaged to endorse a product or service, but is otherwise employed by or affiliated with the company, their statements can be viewed as an endorsement. Statements that in effect endorse should not be misleading, and non-obvious connections between the endorser and the marketer should be disclosed if the connection would reasonably affect a consumer’s choice. An individual who posts statements of this nature on social media sites or in blogs should take care to identify themselves, and their employer or the company compensating them in some way for the endorsement. Employers will generally not be held liable for actions of employees on social media sites if the employer has a social media policy that includes a directive to identify themselves as an employee when making such statements.

 

Trademark and Intellectual Property Issues

  • Monitor Internet References to the Company. Today it is easy to monitor references to your company through several widely available services, for example Google Alerts. Manual monitoring of activity on popular social media sites is also recommended, to identify accounts or pages impersonating the company and misusing company trademarks. Active monitoring can lead to prompt identification of unauthorized disclosure of sensitive information and improper uses of company identity and intellectual property. Further, consider auditing social media activity of potential targets for mergers and acquisitions to identify social media legal risks and liabilities. This can help you limit your company’s exposure to pre-acquisition violations of Financial Industry Regulatory Authority regulations or Sarbanes-Oxley on the target company’s website or social media accounts.
  • Trade Secrets and Other Sensitive Information. Trade secrets only remain proprietary so long as they are not shared with someone outside the business. Once trade secret information, or other information that is confidential or proprietary, is posted on the Internet, it cannot be taken back. If trade secrets are of particular concern to your business, spend time identifying what may constitute trade secret, and educating your employees about what should be kept secret. With respect to other confidential or proprietary information, make sure any documentation is clearly marked as such, and make sure employees are made aware of the sensitive nature of this information. It is not enough to have a social medial policy that prohibits the disclosure of trade secret and sensitive information. Sign confidentiality agreements with key employees who will have access to and/or using confidential information and trade secrets. Finally, provide training department-by-department to ensure that employees are able to identify confidential information and trade secrets and discuss how it should be safeguarded.

Employment Law Issues

  • Hiring Decisions. It is common for employers to run Internet searches on employment candidates. But this practice is not without risk. Google searches can yield information regarding an individual’s race, color, national origin, religion, gender, and other characteristics that are protected by federal and state anti-harassment and non-discrimination laws. The concern is that an employer may learn about an applicant’s protected status through a social media source such as Facebook and may make a decision not to hire that individual based upon that protected status as a result. So employers need to be very cautious when running searches on applicants and using the information obtained in hiring decisions. Consider using a “filter.”
  • Managing Employee Use of Social Media. Many employees are engaged in social media and may post comments on sites such as Twitter or Facebook about their employer, coworkers, working conditions, and other work-related topics. Whether your organization is unionized or not, the National Labor Relations Act may limit your ability to take disciplinary action against an employee for discussing these topics on social media sites, regardless of whether the comments are posted from the employee’s home computer and during nonworking time. Other employment laws also need to be considered in managing employees’ activities on social media sites, such as state and federal anti-harassment and non-discrimination laws, wage and hour laws, and the Stored Communications Act.

 

 

Social media is having a profound impact on corporate communications, advertising, protection of intellectual property and employment relations. In addition, the legal implications surrounding use and monitoring of social media sites is rapidly evolving. Make sure your company stays on top of its use.

 

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