Category: Labor & Employment

Supreme Court: Pharmaceutical Sales Reps Are Exempt from Overtime Pay Requirements Per FLSA’S Outside Sales Exemption

An article by David Barmak of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., regarding The Supreme Court’s Ruling about Pharmaceutical Sales Reps, was recently featured in The National Law Review:

In a major win for pharmaceutical companies, the Supreme Court has ruled that pharmaceutical sales representatives (PSRs) are exempt from federal overtime pay requirements under the “outside sales exemption” of the Fair Labor Standards Act (FLSA). The case, Christopher v SmithKline Beecham Corp., DBA GlaxoSmithKline (No. 11-204, Decided June 18, 2012), resolves a conflict between the Second and Ninth Circuit Courts of Appeal and impacts some 90,000 pharmaceutical sales representatives throughout the United States.

Under the relevant provision of the FLSA’s outside sales exemption, the employee’s primary duty must be making sales. But because of the unique regulatory environment that applies to drug companies, PSRs do not actually sell their employer’s products to physicians. Rather, PSRs meet with physicians and provide information about the benefits and uses of the company’s drugs and other medical products in the hope that the physician will be persuaded to prescribe the products to patients, as medically appropriate. Prescription drugs are then sold by pharmacies that dispense the drugs to individual customers who have a physician’s prescription. Therefore, PSRs do not actually make sales in the usual sense of the word.

As the Supreme Court noted, pharmaceutical companies have promoted their drugs through “sales reps” or “detailers” since at least the early 1950s, treating PSRs as exempt from the FLSA’s overtime requirements without objection from the Department of Labor (DOL). In fact, the DOL did not voice any objection to this classification until 2009, when it filed an amicus brief in a case pending against Novartis in the Second Circuit Court of Appeals, In re Novartis Wage and Hour Litigation, 611 F. 3d 141 (2nd Cir. 2010). DOL supported the PSRs’ bid for overtime pay in that case, arguing that PSRs are not exempt under the outside sales exemption because they were not involved in a “consummated transaction,” as contemplated by the regulations issued under the FLSA. The Second Circuit gave substantial deference to the DOL’s interpretation of its regulations and ruled that the exemption did not apply, and the Supreme Court declined to review the Second Circuit’s ruling. Meanwhile, a similar case against SmithKline Beecham (which trades as “GlaxoSmithKline”) had proceeded to the Ninth Circuit Court of Appeals. The DOL supported the PSRs’ claims in that case, too, but the Ninth Circuit ruled that the DOL’s interpretation of the FLSA was not entitled to controlling deference and that the sales repsdid make sales within the meaning of the regulations. The Supreme Court then agreed to review the Ninth Circuit’s ruling. (During the same period that the Novartis and SmithKline Beecham cases were wending their way through the courts, two other pharmaceutical companies, Johnson & Johnson and Eli Lilly, had won rulings in the Third and Seventh Circuits, respectively, that pharmaceutical sales reps qualified as exempt under a separate FLSA exemption, the administrative exemption.)

In a 5-4 decision written by Justice Alito, the Supreme Court affirmed the Ninth Circuit, ruling that SmithKline Beecham’s PSRs qualified as outside salesmen within the meaning of the FLSA exemption, and holding that, at least in the highly regulated environment of pharmaceutical sales, the PSRs were engaged in sales even though physicians do not actually purchase prescription drugs from them. This is so, the Supreme Court reasoned, because the FLSA broadly defines “sale” to include “… any sale, exchange, contract to sell, consignment for sale, shipment for sale or other disposition.” It concluded that the “catchall phrase ‘other disposition’ is most reasonably interpreted as including those arrangements that are tantamount, in a particular industry, to a paradigmatic sale of a commodity,” and that the PSRs’ efforts to persuade physicians to prescribe their company’s drugs met this standard.

Significantly, the Supreme Court’s interpretation of the relevant FLSA and regulatory provisions was contrary to the DOL’s own interpretations. Usually, the agency’s interpretation would have been accorded substantial deference. It was not, in this instance, because the Court found that the DOL’s interpretation was, in effect, ex post facto, arrived at following decades of silence and only after there was litigation between Novartis and SmithKline Beecham and some of their PSRs.

While the Supreme Court was clearly influenced by the unique regulatory environment in which the pharmaceutical industry operates and its decision applies first and foremost to the pharmaceutical industry, the Court’s reasoning may provide the basis for other employers to argue for the application of exemptions in other situations where there has been a long history of treating a particular class of employees as exempt without DOL interpretive guidance or enforcement activity to the contrary.

©1994-2012 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

How The White House’s Endorsement of Same-Sex Marriage Affects Employment Law

Recently Anjali Chavan of Dinsmore & Shohl LLP had an article regarding the White House’s Endorsement of Same-Sex Marriage, featured in The National Law Review:

On May 9, 2012, President Barack Obama became the first sitting U.S. President to affirm his belief that same-sex couples should be able to get married. Weeks later, the First Circuit Court of Appeals declared a portion of the Defense of Marriage Act (“DOMA”) unconstitutional.1 These announcements are just two of many events that have shaped the current landscape in this country with respect to the rights of lesbian, gay, bisexual, and transgender (“LGBT”) Americans.

As LGBT issues are being placed at the forefront of American politics, employers would do well to pay attention, as these changes may necessitate changing employment policies, educating staff, and potentially defending against employment lawsuits for previously unchartered claims, including discrimination based upon sexual orientation and gender identity or expression.

On June 12, the U.S. Senate Health, Education, Labor and Pension Committee (“HELP Committee”) is set to consider the Employment Non-Discrimination Act (“ENDA”). ENDA seeks to expand the protections of Title VII to cover sexual orientation and gender identity and will prohibit discrimination in hiring and employment by nonreligious employers with at least 15 employees.

ENDA will be a federal mandate proscribing any discrimination based on sexual orientation or gender identity by both public and private employers—thereby bringing employees living in states without such protections like Ohio,2 Kentucky,3Pennsylvania,4 and West Virginia,5 under the umbrella of federal protection.

The Sixth Circuit Court of Appeals has found that Title VII protects transgender employees—holding that discriminating against employees who do not identify with their gender, act like members in their gender, or conform with sexual stereotypes is a form of sex discrimination violates Title VII. Barnes v. City of Cincinnati, 401 F.3d 729 (6th Cir. 2005); Smith v. City of Salem, 378 F.3d 566 (6th Cir. 2004).

Further underscoring the shifting landscape of LGBT rights was the Equal Employment Opportunity Commission’s (“EEOC”) recent ruling in Macy v. Holder, expanding the prohibition against sex discrimination of Title VII to cover transgender workers.

In Macy v. Holder, the EEOC held that Mia Macy’s complaint of discrimination based on gender identity, change of sex, and/or transgender status can be brought under Title VII. Macy, a former police detective in Phoenix, Arizona, relocated to San Francisco and applied for an open position at the Bureau of Alcohol, Tobacco, Firearms and Explosives (“Agency”) for which she was qualified. Macy originally applied for the position as a man and interviewed with the Director as a man. Macy asserted that the Director told her on two separate occasions that she would have the position pending completion of a background check. A few months after her original application, Macy informed the Agency that she was beginning the process of transitioning from male to female. After the Agency received notice of Macy’s change of name and gender, the agency contacted Macy and told her the position was no longer available due to lack of funding. Macy later discovered that the Agency filled this position with another person.

The EEOC found that charges of discrimination based on transgender status or gender identity are cognizable under Title VII’s sex discrimination prohibition and any such claims must be processed by the EEOC.

That Title VII’s prohibition on sex discrimination proscribes gender discrimination, and not just discrimination based on biological sex, is important. If Title VII proscribed only discrimination on the basis of biological sex, the only prohibited gender-based disparate treatment would be when an employer prefers a man over a woman, or vice versa. But the statute’s protections sweep far broader than that, in part because “gender” encompasses not only a person’s biological sex but also the cultural and social aspects associated with masculinity and femininity.

* * *

[G]ender discrimination occurs any time an employer treats an employee differently for failing to conform to any gender-based expectations or norms.

The growing trend in the United States reveals that employment law is changing and adapting to provide a more inclusive environment for LGBT employees. Even though your state or federal circuit court may not recognize certain protections for LGBT individuals, many cities and counties around the country do have such protections in their local ordinances. As employers are navigating these issues in hiring, promoting, and firing, they should be cognizant of the local, state, and federal laws that may be at play. Employers must take the time to recognize and understand these changes, and consider revising their employee manuals and employment policies to comply with these changes.

(1) Massachusetts v. U.S. Dep’t of HHS, et al., Case Nos. 10-2204, 10-2207, & 10-2214, 2012 U.S. App. LEXIS 10950, (1st Cir. May 31, 2012) (affirming the lower court’s holding finding Section 3 of DOMA which defines marriage for federal purposes as a union between a man and a women, to be an unconstitutional encroachment on the power to define marriage granted to the states by the Tenth Amendment).
(2) Ohio prohibits discrimination by public employers based on sexual orientation.
(3) Kentucky prohibits discrimination by public employers based on sexual orientation and gender identity.
(4) Pennsylvania prohibits discrimination by public employers based on sexual orientation and gender identity.
(5) West Virginia provides no protections for LGBT employees.

© 2012 Dinsmore & Shohl LLP

On May’s Employment Report

The U.S. Department of Labor had an article regarding May’s Employment Report published in The National Law Review:

While Friday’s jobs report was a bump in the road to recovery, our labor market continues to show signs of economic growth. We have had 27 straight months of private sector job growth, which has helped 4.3 million Americans get back to work. This expansion has been broad, with every industry (except government) showing clear growth in the past two years.

Last month, we saw strong growth in health care, transportation and warehousing, and wholesale trade. In particular, manufacturing continues to be a symbol of the resilience of American industry, with nearly 500,000 jobs added over the last 28 months. This has been the strongest growth in manufacturing in any 28 month period since April 1995.

The ratio of available jobs to jobseekers has declined from 1:7 to 1:3 from 2009 to 2012.

Additionally, millions more Americans are working today compared to the end of 2009. Competition for jobs has also eased in recent months. During the height of the recession, there were 7 jobseekers for every available job, making it very difficult to find employment. Today, as more jobs are becoming available, the ratio has declined to just over 3 jobseekers for every job opening – improving the chances for an unemployed individual to find an opportunity.

The steady increase in employment has also helped drive the unemployment rate down to the low 8% mark. Yet, there has been some debate about what is causing the unemployment rate to decline – is it people leaving the labor force or people getting jobs? The facts are clear: since August 2011 (when the rate started its steady decline) the primary factor in bringing the unemployment rate down has been people getting jobs.

Decline in the Unemployment Rate

99% of Decline in Unemployment Rate Since August 2011 is Because of People Finding Jobs

But we have to do more. The economic situation continues to be a challenge for too many Americans who desperately want a job. We won’t be satisfied with our efforts until every American who wants a job can get a one.

At the Department of Labor, we are taking a number of steps to help the unemployed get back to work faster, including reforms to the unemployment insurance system. These reforms will provide states with more flexibility to respond to changes in the economy, provide employers with tools to avoid layoffs, help the unemployed get back into the workforce faster and even expand opportunities for the unemployed to start their own businesses.

However, as Secretary of Labor Hilda Solis said on Friday, congress must come together to work on the to do list President Obama developed. These plans will encourage businesses to bring jobs back to the U.S.; help small businesses grow and hire more workers through tax credits; create more job opportunities for our veterans; invest in the clean energy economy; and help struggling homeowners with refinancing options so they can stay in their homes.

By Adriana Kugler on June 4, 2012

Adriana Kugler is the Chief Economist for Secretary of Labor Hilda L. Solis.

© Copyright 2012 U.S. Department of Labor

2013 H-1B Visa Cap Closing Soon

The National Law Review recently published an article by Kimberly A. Clarke, Nina Thekdi, and Luis E. Avila of Varnum LLP regarding 2013 H-1B Visa Caps:

Varnum LLP

As of June 1, 2012, approximately 10,000 H-1B visas remain within the fiscal year 2013 H-1B cap. This indicates that the cap will likely be reached within the next few weeks.   Employers will then need to wait until April 2013 to file new H-1B visa for an October 1, 2013 start date.

This H-1B cap limitation does not apply to extensions of H-1B status or those obtaining H-1B status to teach at colleges, universities, related nonprofit or government research organizations or J waiver physicians.

If your company has potential new H-1B candidates such as international students in their OPT work authorization period or foreign candidates, please contact us to prepare H-1B petitions for these individuals as soon as possible to secure an available visa.

© 2012 Varnum LLP

Ninth Circuit Holds Statistics Alone Can Establish Prima Facie Case of Age Discrimination in a RIF

The National Law Review recently published an article about Age Discrimination written by Michael T. Chin of Schiff Hardin LLP:

On May 29, 2012, the Ninth Circuit Court of Appeals issued a decision clarifying the standard for plaintiffs to establish a prima facie disparate treatment discrimination claim. In Schechner v. KPIX-TV, No. 11-15294, 2012 U.S. App. LEXIS 10766 (9th Cir. May 29, 2012), the court held that a plaintiff’s initial burden of proof is relatively low and can be met by the introduction of statistics showing an adverse impact on a protected category — in this case, older workers. While the plaintiffs met their initial burden here, the Ninth Circuit nevertheless affirmed the district court’s grant of summary judgment in the employer’s favor on plaintiffs’ age discrimination claims under the California Fair Employment and Housing Act (“FEHA”).

In March 2008, like many employers at the time and even now, defendant KPIX-TV (“KPIX”) was faced with the task of having to reduce its annual budget. As part of its cost-cutting measures, KPIX implemented a reduction in force (“RIF”), resulting in the termination of five members of the “on-air” news team, including both plaintiffs. Each member of the RIF group was male and over the age of forty. Plaintiffs filed suit, claiming that their terminations were the product of age and gender discrimination in violation of the FEHA. Plaintiffs submitted reports by an expert statistician who concluded that the age disparity between the RIF group and the group of individuals that KPIX decided to retain was “statistically significant” and age “correlated closely” with the decision to terminate.

The Ninth Circuit held that “statistical evidence that shows a stark pattern of age discrimination” is sufficient to establish a prima facie case, even though “it does not address the employer’s proffered non-discriminatory reasons for the discharge.”Id. at *14-15. The Ninth Circuit proceeded to consider the legitimate, non-discriminatory reasons for the RIF offered by KPIX. Here, KPIX presented evidence of reasons for layoff decisions unrelated to age, such as that news anchors generally would not be subject to termination because they were the “face” of the station, that specialty reporters would not be subject to termination because they were being promoted to push the brand of the station, and that general assignment reporters would be subject to termination based on their respective dates of contract expiration. The Ninth Circuit concluded that KPIX had established non-discriminatory reasons for its RIF decisions, and that the plaintiffs were unable to show pretext.

This case highlights the importance of establishing a set of reasoned, job-related factors to be considered in deciding which employees to include in a RIF. Numbers suggesting an adverse impact on protected classes can be problematic, but not necessarily fatal.

© 2012 Schiff Hardin LLP

NLRB’s Acting General Counsel Releases Another Report on Social Media Policies

An article by Steve L. Hernández of Barnes & Thornburg LLP recently had an article regarding NLRB’s Social Media Policies in The National Law Review:

On May 30, 2012. Lafe Solomon, the NLRB’s Acting General Counsel (the “AGC”), released a third report on social media cases brought before the Board. This report deals with seven different cases involving social media policies, covering topics such as the use of social media and electronic technologies, confidentiality, privacy, protection of employer information, intellectual property, and contact with the media and government agencies. In the first six policies reviewed, the AGC concluded that at least some of the provisions in the employers’ policies and rules were overbroad and, accordingly, unlawful, under the National Labor Relations Act (NLRA). Importantly, the Board found that the savings clauses in these otherwise unlawful policies did not save the policies. Only the final social media policy reviewed by the AGC was found to be entirely lawful. In finding the final reviewed policy lawful, the AGC pointed to the policies substantial use of examples of allowed and proscribed behavior. Specifically, the AGC stated that “rules that clarify and restrict their scope by including examples of clearly illegal or unprotected conduct, such that they could not reasonably be construed to cover protected activity, are not unlawful.”

© 2012 BARNES & THORNBURG LLP

Clash of the Generations – Age Discrimination in the United Kingdom in 2012

The National Law Review recently featured an article by Katie L. Clark of  McDermott Will & Emery regarding Age Discrimination:

In Europe, many employers are currently caught in the middle of a conflict between older and younger employees.  Many older employees want to work longer (whether by choice or necessity), while younger employees feel that an aging workforce is hampering their career progression.  Both feel that that their age is being used against them.  In the United Kingdom, the repeal of default retirement ages in April 2011 has only aggravated the problem.

UK employers may lawfully use age directly or indirectly in decision-making if “justified.”  But where is the line drawn?

Two recent English Supreme Court cases provide some much-needed clarification for employers, particularly with regard to possible justifications for direct age discrimination.

Justifying Age Discrimination

Both direct and indirect age discrimination may be justified, that is, found to be lawful, if the employer can demonstrate that the discriminatory measure is “a proportionate means of achieving a legitimate aim”.  The Supreme Court in the United Kingdom has now ruled that the “legitimate aims” that can justify direct age discrimination are narrower than those that can justify indirect age discrimination.

Legitimate Aims

Indirect age discrimination covers situations in which a workplace provision, criterion or practice puts people in a particular age group (young or old) at a disadvantage.  A requirement of obtaining a degree to gain a promotion, for example, puts older people at a disadvantage because of lesser university access for prior generations.  Keeping such a policy in place will be lawful if justified by individual reasons that are particular to that employer, such as cost reductions or improving competiveness.  This gives employers flexibility to adopt legitimate measures that are appropriate to their individual business needs.

By contrast, the Supreme Court has now stated that direct age discrimination—treating an individual less favourably on grounds of his or her age or age group—may only be justified if an employer is implementing a legitimate public interest.  The Supreme Court, in examining European case law, has identified two legitimate public interests that potentially justify direct age discrimination:

  • Inter-generational fairness—i.e., measures that promote the recruitment and retention of, and the sharing of limited opportunities between, different generations
  • Dignity—i.e., avoiding the need to dismiss older workers on the grounds of incapacity or under-performance, which may be humiliating for the employee or lead to disputes

Absent a legitimate aim that falls within one of those two categories, it is highly unlikely that an employer would be able to justify direct age discrimination, such as a mandatory retirement age forcing an individual out.

Even if an employer can point to a potentially legitimate public interest, it must establish that it is in fact pursuing the relevant interest.  For example, improving the recruitment of young people is potentially a legitimate public aim, but it will not justify discriminating against older employees if the employer, in fact, has no difficulty in recruiting younger employees.

Proportionate Means

Once a legitimate aim has been established for direct or indirect discrimination, an employer will need to demonstrate that the measure adopted is proportionate.  The Supreme Court has confirmed that to be proportionate, a measure must be both an appropriate means of achieving the legitimate aim and (reasonably) necessary in order to do so.

A measure will not be appropriate if it does not achieve the proposed aim, while a measure that goes further than is reasonably necessary to achieve the proposed aim will be disproportionate and impermissible.

It may be more difficult to show proportionality if the stated aim is to preserve the dignity of employees.  Arguably, a retirement age of 65 insinuates that once employees turn 65, they are no longer able to do the jobs that they have been doing up to their 65th birthdays.  If anything, this practice reinforces rather than dispels discriminatory stereotypes, which will make it difficult to justify.

What Does This Mean for Employers?

Direct discrimination claims are harder to defend than indirect discrimination claims.  Managers need to understand that using mandatory retirement ages, while still possible, may lead to tough challenges.

The Supreme Court has provided clarification for employers on how to justify direct age discrimination, but not a definitive one-size-fits-all answer.  The identification of legitimate aims is only half the problem, and questions of proportionality will continue to be difficult to answer.

Consequently, if imposing, continuing, or relying upon age-related criteria such as mandatory retirement ages is important to you as an employer, now is a good time to talk to us about the legitimate aim that will be relied upon and how this can be demonstrated for the particular workplace as a matter of fact.

© 2012 McDermott Will & Emery

NLRB Member Flynn Resigns From Board

The National Law Review recently published an article by Scott J. Witlin of Barnes & Thornburg LLP regarding the National Labor Relations Board:

Terence Flynn, one of two Republican members on the five member NLRB, resigned from the Board Sunday, May 27, effective July 24. Flynn has been under investigation over alleged inappropriate communications regarding the Board’s internal deliberations. Flynn’s resignation will permit President Obama to appoint another remember.

By tradition, that member should be a Republican. President Obama himself was the subject of controversy earlier this year by using his recess appointment powers to fill three vacancies on the Board. Member Flynn was one of those recess appointments. More information about the resignation is available here.

© 2012 BARNES & THORNBURG LLP

No Expectation of Privacy in Emails Sent Over Employer’s Email Account, Massachusetts Court Decides

The National Law Review recently published an article by Martha J. Zackin of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. regarding Employee Emails:

Does an employer invade an employee’s privacy by accessing and reviewing the employee’s email? A recent Massachusetts Superior Court decision, Falmouth Firefighters Union v. Town of Falmouth, answers “no.”

For a two year period, the town of Falmouth, Massachusetts, used Google Gmail for its email.  Falmouth entered into a contract with Google for use of Gmail, and the town purchased the domain names used for the email accounts.  Each town employee was given a Gmail address and was responsible for managing the email sent to his or her address.  Although Falmouth’s system did not save any emails on any computer, server, or disc, it was the administrator of the email accounts.  The Gmail accounts were widely used by Falmouth employees for personal communications.

Falmouth published an email policy stating that the town maintained the ability to access any messages on or transmitted over the email system.  “Because of this fact,” the policy stated, “employees should not assume that such messages are confidential or that access by the employer or its designated representatives will not occur.”  Although there was a dispute over whether this policy was subject to collective bargaining between the town and the union representing Falmouth employees, it was clear that employees were never told that their emails were confidential.

The emails to and from the account of a Falmouth firefighter were reviewed and copied during the course of investigating a charge of sexual harassment brought against the town by a former employee.  Some of these emails contained highly personal, intimate, and embarrassing emails.  The firefighter sued, claiming that Falmouth had invaded his privacy in violation of the Massachusetts Privacy Act, which provides that “[a] person shall have a right against unreasonable, substantial or serious interference with his privacy.”  To prevail, a plaintiff must show an expectation of privacy and an unreasonable and either serious or substantial interference with that privacy.

In a case of first impression, the Court found that the firefighter had no legitimate expectation of privacy in the emails and, therefore, no invasion of privacy.  In a very interesting analysis, the Court did not reach the issue of whether the town’s email policy was properly implemented or even relevant.  Rather, and importantly, the Court found that the firefighter “did not have a reasonable expectation of privacy in the emails he voluntarily sent over the Town’s email system absent any assurances that such communications were private or confidential.”

What does this mean for Massachusetts employers?   We continue to recommend that employers implement electronic communications policies that clearly and unequivocally state that the employer has the right to access and review any and all information sent, received, or maintained on any employer-owned or maintained electronic devices or systems.  However, at least in Massachusetts, the absence of such policies will not restrict the rights of employers to access employee emails.

©1994-2012 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

When the Sky’s the Limit, Don’t Forget the Basics: Social Media, the Internet and Your Business

The National Law Review recently published an article by Charles H. Gardner of Much Shelist, P.C. regarding Social Media and Businesses:

In today’s diverse marketplace, social media sites, as opposed to a company’s own branded website, are poised to become a primary and potentially first point of contact with current and future generations of consumers. Techrevel.com recently reported that 56% of consumers who use Facebook, as an example, say that they are more likely to recommend a brand after becoming a “fan.” With the number of Facebook users approaching one billion, a strong social media presence has become a de facto mandate for businesses.

In response, start up and established businesses are growing more reliant on the Internet, and social media in particular, for marketing and sales. According to a recent Forrester Research study cited on Statistica.com, social media marketing expenditure is expected to grow to $5 billion in 2016, up from approximately $1.6 billion in 2011.

In this context, you may be exploring the possibility of making your company website more interactive. From a business perspective, creating a user experience on your branded website that is simpatico with social media reanimates the end user’s experience and revitalizes your brand. From a legal perspective, however, you may wonder how to enter (or expand your presence in) this pioneer media. How do you balance the advantages of interactivity with the added burdens of creating, maintaining and updating essential privacy, data security and other policies?

You can start by asking―and answering―the following questions:

Does your website have a privacy policy that is compliant with all federal, state and territorial laws?

Federal law (and several state laws) mandates that companies inform their users about the personally identifiable information (PII) they collect, how the company uses it, with whom the company may share it, and how users may “opt-out” of having their PII collected and shared. PII includes information such as name, social security number, biometric records, etc., that alone or when combined with other information such as date and place of birth, mother’s maiden name, etc., can be used to trace an individual’s identity. Because many states have regulations that are more restrictive than federal regulations, you should seek to comply with the laws of the most restrictive states. These laws may apply not only to information that you collect from your own company website, but also from your company social media pages.

Every company with a presence on the internet should have a privacy policy that is compliant, proactive and forward thinking. If you have a strong international presence, it should address issues of global compliance as well.

If your company website is interactive or likely to become interactive, are you following proper procedures to shield the company from liability?

Consumers are likely to continue their use of third-party social media sites, including Facebook, as an interactive first point of contact with a company. However, as branded company sites begin to mirror the functionality of traditional social media sites, company sites are including interactive features from blogs and community chat rooms to video sharing  and personalized profile pages that allow the posting of user-generated content (UGC). If your website includes these or similar features, then you are, in fact, also an interactive website.

There are two important legal protections for operators of interactive computer services. The Communications Decency Act (CDA) provides safe harbor (immunity from liability) for Internet Service Providers (ISPs). This shields an ISP from liability arising out of civil causes of action such as defamation, invasion of privacy, trade libel, etc. As a very general rule, as long as the provider is not a publisher of the content (importantly, they merely provide a place to post the content; they do NOT contribute to or edit it), they will not be held liable for the original posting of the offending UGC. While the term ISP is traditionally applied to services such as Yahoo!, Google, and AOL, recent case law suggests that if you operate an interactive computer service, you should, for the practical purpose of maintaining safe harbor protection, consider yourself a sort of ISP.

The Digital Millennium Copyright Act (DMCA) also contains important safe harbor provisions. Under the DMCA, “an operator of interactive computer services” is immune from liability for intellectual property (primarily copyright) infringement by a third party using the service provided that the provider follows certain registration, compliance and procedural guidelines.

Do you post and require users to agree to your company website’s terms of use?

One of the most valuable policies for a website owner is a terms of use policy (sometimes called “house rules” or a “user agreement”). Your terms of use tell your users what they can reasonably expect when using your site. For example, you may prohibit certain activities, such as hate speech, personal attacks, posting materials to which the user does not have the requisite legal rights, etc. By setting the ground rules of what you will allow on your site, you can monitor UGC for violations of the policy and remove or refuse to post such material objectively based upon your site’s posted terms and preserve your safe harbor protection. Remember, if an ISP edits or modifies content, it is treated as a publisher of content and can lose safe harbor protection. However, if an ISP removes content in its entirety for violating a documented policy, the ISP is not considered a publisher and is protected under the CDA for example.

A well-crafted terms of use policy, if correctly written and agreed to, also forms a “contract” between the end user and the website operator. For example, arbitration clauses can minimize the likelihood of class action lawsuits and the potentially negative publicity of high-profile trials. A transparent policy can also set reasonable expectations, engender goodwill and protect the company website owner.

Do you have internal procedures and policies in place to address data security, data breaches and personnel practices?

As soon as reasonably possible, before or after your site goes live, you should discuss data security with your attorney and a qualified information technology (IT) representative. Like privacy policies, data security policies should comply with federal law and regulations, as well as the laws of the most restrictive U.S. state or territory. It is wise to have written procedures for data protection and breaches, which should be provided to any personnel who will be dealing with the company’s electronically stored information (ESI), particularly to the extent that the ESI contains end users’ PII.

You should also have a separate personnel policy that educates your employees and contractors about the use of company technology, social media and the Internet, and that protects your company without unreasonably or illegally restricting your employees’ activities.

As a practical matter, social media is no longer merely an optional business tool. It is a primary source of communication, information and advertising. Developing sound social media and technology policies as early as possible can reduce your liability and exposure and allow your company room to grow in this new online world.

© 2012 Much Shelist, P.C.