How to Satisfy the FTC Without Your Influencers Becoming Employees in California

Legal and regulatory issues
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Amy MudgeHofferIn light of a new California decision interpreting the state’s wage and hour law, marketers should take a careful look at their influencer compliance programs not only for Federal Trade Commission (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.

The FTC’s view is that it takes a village to ensure influencers disclose any material connection to a company with which they have a relationship. And 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. 

However, from an employment law perspective, at least, there may be such a thing as too much control. Recently, the California Supreme 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. 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 engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

In most cases, influencers retained by marketers will readily satisfy the second and third prongs. However, 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.

The question is how marketers balance the need for “freedom from direction from control” under the recent decision with the FTC’s statements that brand companies must “train” influencers in how to comply with the FTC’s requirements under the Endorsement Guidelines. To date, some brands may have taken a one-size-fits all approach to compliance in that area and simply applied their employee social media policy to influencers through their contracts. After the recent decision, marketers doing business in California should take a fresh look at their influencer requirements. Experienced legal counsel can assist marketers in balancing the need for FTC compliance with developing employment law considerations.