Navigating the Web of Social Media Regulation. SIFMA Social Media Seminar, February 26, 2015 Schwab Conference Center, San Francisco, CA

Transcription

1 Navigating the Web of Social Media Regulation SIFMA Social Media Seminar, February 26, 2015 Schwab Conference Center, San Francisco, CA 1

2 Introductions Panel Douglas Preston Senior Vice President, Head of GBAM Regulatory Affairs, Bank of America Merrill Lynch Tom Selman Executive Vice President, Regulatory Policy and Legal Compliance Officer, FINRA Yasmin Zarabi Vice President, Legal and Compliance, Hearsay Social Moderator Barbara Stettner Partner, Allen & Overy LLP 2

3 Overview Social Media Regulatory Framework Recent Cases and Disciplinary Proceedings Impact of State Facebook Laws 3

4 Social Media Regulatory Framework 4

5 Overview Federal Securities Exchange Commission (SEC) Commodities Futures Trading Commission (CFTC) National Labor Relations Board (NLRB) Federal Trade Commission (FTC) Self-Regulatory Organizations Financial Industry Regulatory Authority (FINRA) National Futures Association (NFA) International International Organization of Securities Commissions (IOSCO) Federal Financial Institutions Examination Council (FFIEC) (comprised of the Federal Reserve Board, Consumer Financial Protection Board, Office of the Comptroller of the Currency, National Credit Union Administration, and Federal Depository Insurance Corporation) State Social Media Legislation 5

6 Regulation Timeline NASD Notice to members (Online Suitability) Regulatory Notice Regulatory Notice SEC Compliance Risk Alert FINRA Broker Check Proposal SEC Investment Management Guidance FINRA Targeted Examination Letter SEC Compliance and Disclosure Interpretations on Hyperlinks in Proxy Contests and Securities Offerings Regulatory Notice FINRA Broker Check Revised Proposal Regulatory Notice Regulatory Notice FINRA Communication Rules SEC Report on Regulation Fair Disclosure SEC Guidance on Testimonial Rule and Social Media FINRA Review of Communications Rules Oct 1998 April 2001 Dec 2007 May 2009 Dec 2009 Jan 2010 Jan 2011 Aug 2011 Jan 2012 May 2012 Jan 2013 Feb 2013 March 2013 April 2013 June 2013 July 2013 Dec 2013 Mar 2014 April 2014 July 2014 Sep Dec Children s Online Protection Privacy Act Regulatory Notice NFA Guidance NLRB OM NLRB OM FTC Guidance NLRB Advice Memorandum FTC Letter to Cole Haan NLRB Advice Memorandum IOSCO Release SEC/FINRA NLRB OM NLRB OM FFIEC Guidance IOSCO Survey Report Other regulatory bodies 6

7 4 Pillars of Social Media Compliance FINRA Rule 2210, FINRA Rule 3110, FINRA Regulatory Notices & Set and document a policy. Train employees on policy. Follow up on red flags when employees break policy. POLICY & TRAINING SUPERVISION FINRA Rule 2210, FINRA Rule 3110, FINRA Regulatory Notices & Implement a supervision system reasonably designed to achieve compliance. Supervise employee communications. Principals must pre-approve static content. Monitor online/interactive content and messaging. FINRA Rule 2210, FINRA Rule 2111, Advisers Act Rule 206(4)-7 ; FFIEC Guidance Only put out content that is fair and balanced. Don t provide financial advice without understanding client s financial situation. CONTENT RECORD KEEPING FINRA Rule 3110, FINRA Rule 2210 (b), SEC 17a-3 & a-4, FINRA Regulatory Notices &11-39 Capture and retain all postings on social media for 3 years from the date of last post. First 2 years in accessible place. 7

8 Social Media: Balancing Risks with Rewards REWARDS RISKS 8

9 FINRA Social Media Content Categories S TAT I C C O N T E N T D Y N A M I C C O N T E N T - Treated like an advertisement - Requires pre-approval - Must be recorded in archive - Treated like a public appearance - Should be fair/balanced - Cannot be recommendations - Monitored by supervisor Examples - Profile content - Promoted content Examples - Tweet - Facebook status update 9

10 Static vs Dynamic Content on Linkedin STATIC CONTENT DYNAMIC CONTENT 3 RD PARTY CONTENT 10

11 Static vs Dynamic Content on Facebook STATIC CONTENT DYNAMIC CONTENT 3 RD PARTY DYNAMIC CONTENT 11

12 Static vs Dynamic Content on Twitter STATIC CONTENT DYNAMIC CONTENT 12

13 Update on FINRA Regulations 13

14 FINRA Rule 2210(d) Content Standards FORMER COMMUNICATION CATEGORIES NEW FINRA COMMUNICATION CATEGORIES APPLICABILITY FOR SOCIAL MEDIA - Advertisement - Sales Literature - Public Appearances - Article Reprints - Institutional Sales Material (formerly NASD 2211) - Correspondence (formerly NASD 2211) - Retail Communication (includes former categories: Advertisement, Sales Literature, Public Appearance, Article Reprints) - Static content (e.g. a LinkedIn profile) DOES need pre-approval (online/interactive forum posts do NOT require pre-approval.) - Institutional Communication - Financial or investment recommendations or promotion of financial product/service must be supervised in accordance with the firm s written procedures - Correspondence - Communicated to 25 or less retail investor (e.g. direct messages on Facebook, LinkedIn, and Twitter) adhere to firms internal processes 14

15 FINRA Retrospective Review on Communications Rules FINRA is conducting a retrospective review of its communications rules to improve the effectiveness of the rules while ensuring they are meeting intended investor protection objectives. In December 2014, FINRA published a report on the assessment phase of the review, which includes a summary of responses received from stakeholders on the effectiveness of FINRA s communication rules, including communication through social media. Stakeholder Responses FINRA should provide increased flexibility and clarity on the application of its rules to social media and mobile communications FINRA should clarify firms obligations with respect to links to content on third-party websites and posting third-party content on the firm s website 3% Recommendations apply to retail communications 34% 63% Agree Neutral Disagree In the ensuing action phase, FINRA staff will consider proposals or other initiatives resulting from the assessment phase. FINRA has already appointed a Public Communications Committee to obtain the input of industry and compliance experts on matters including social media. 15

16 FINRA s BrokerCheck Link Revised Proposal In April 2014, FINRA published a Regulatory Notice seeking comment on a proposed rule that would require broker-dealers to prominently feature links to its FINRA BrokerCheck disclosures on their websites and specified social media platforms. Comments on the proposal varied: Supporters stated the proposal would increase investors awareness of BrokerCheck, but recommended that it require a deep link directly to a firm s or associated person s BrokerCheck report, rather than to the site s home page. Opponents argued that the proposal was unworkable in its current form because firms do not control content and linking restrictions on third-party websites. FINRA staff is still reviewing these comments and determining how to respond to the comments. FINRA likely will either republish the proposal for comment in a Regulatory Notice, or file a modified version of the proposal with the SEC, which would then publish it for comment in the Federal Register. 16

17 FINRA Targeted Examination Letter In June 2013, FINRA sent a targeted examination letter to twenty-two firms requesting that each firm provide: An explanation of how the firm is currently using social media (e.g., Facebook, Twitter, LinkedIn, blogs) at the corporate level in the conduct of its business. The URL for each social media website used by the firm, the date the firm began using each of the sites, and the identity of all individuals who post and/or update content of the sites. An explanation of how the firm s registered representatives and associated persons generally use social media in the conduct of the firm s business, including date(s) the firm began allowing the use of each social media platform and whether such usage continues. The portion of the firm s written supervisory procedures concerning the production, approval, and distribution of social media communications. An explanation of the measures the firm has adopted to monitor compliance with the firm s social media policies (e.g., training, annual certifications, technology). A list of the firm s top 20 producing registered representatives (based on commission sales) who used social media for business purposes to interact with retail investors. 17

18 Update on SEC Regulations 18

19 SEC Approves Social Media as an Important Communication Channel 19

20 Twitter and SEC Disclosures In April 2014, the SEC published new Compliance and Disclosure Interpretations allowing the use of hyperlinks to satisfy legend requirements in proxy contests, tender offers and security offerings so long as the following conditions are met: 1 The social media platform has technological limitations on the number of characters or amount of text that may be included in the communication (e.g., Twitter); 2 Including the required statements in their entirety, together with the other information, would cause the communication to exceed the limit on the number of characters or amount of text; and 3 The communication contains an active hyperlink to the required statements and prominently conveys, through introductory language or otherwise, that important or required information is provided through the hyperlink. 20

21 Testimonial Rule Background Investment Advisers Act of 1940 ( Advisers Act ) SEC Rule 206(4)-1 prohibits an investment adviser from publishing any advertisement that, among other things, refers directly or indirectly to any testimonial concerning the investment adviser, or concerns any advice, analysis, report or other service rendered by such investment adviser. An advertisement is defined to include any notice, circular, letter or other written communication addressed to more than one person, or any notice or other announcement in any publication, or by radio or television, which offers any analysis, report, publication, graph chart, formula or other device to be used in making a determination to buy or sell securities. 21

22 SEC Guidance on the Testimonial Rule and Social Media In March 2014, the SEC s Division of Investment Management staff issued guidance concerning application of the Testimonial Rule and social media. Advisers may use public commentary from independent, third-party social media sites without violating the Testimonial Rule, so long as the following conditions are met: Such sites provide content independent of the adviser or its representative; Content is not independent of an adviser or its representative if the adviser directly or indirectly authored the commentary. There is no material connection between the independent social media site and the adviser that would call into question the independence of the independent social media site or commentary; and The adviser or its representative publishes all of the unedited comments appearing on the independent social media site regarding the adviser or representative. An article by an unbiased third party regarding the adviser s investment performance is not a testimonial if it does not include a statement of a client s experience with or endorsement of the adviser. 22

23 SEC Guidance (con t) Advertising An adviser or its representative may publish public commentary from an independent site if that site also includes the adviser s or adviser representative s advertising, as long as it is readily apparent to a reader that the advertisement is separate from the public commentary, and the receipt of advertising revenue does not influence which public commentary is included on the independent social media site. An adviser or its representative may refer to public commentary from an independent social media site on its non-social media advertisements, but may not publish testimonials from the independent social media site. Contacts Communal listings of contacts or friends must not be identified as current or past clients. Mathematical Averages An adviser or its representative may publish testimonials from an independent site that include a mathematical average of the commentary provided the commenters provide the ratings themselves and the ratings system is not designed to elicit predetermined results that could benefit the adviser or its representative. 23

24 Like Feature vs. Testimonials Current Status The SEC staff has interpreted testimonials to include a statement of a client s experience with, or endorsement of, an investment adviser. The Like Feature: allows an individual to like the profile or status of an investment adviser. Staff advised in an SEC Risk Alert that a third-party s use of the like feature on an investment adviser s social media site could be considered a testimonial if it is an explicit or implicit statement of a client s experience with an investment adviser. LinkedIn Endorsement Button: Endorsements for a skill may already exist on an investment adviser s profile, or a third party may initiate an endorsement for a skill that does not exist on an investment adviser s profile. How Are Firms Complying? Prohibit third party postings on its social media sites or allowing only authorized users to make such postings Use of disclaimers Policies prohibiting advisers from accepting endorsements on LinkedIn Social media software solutions (e.g., Socialware, Hearsay Social) What Next? SEC staff has acknowledged private fund advisers concerns regarding the difficulties of applying the specific prohibitions on testimonials and past specific recommendations to their business models. The staff is considering issues raised by private fund advisers and considering what action, if any, should be taken or recommended to the Commission. 24

25 SEC Division of Investment Management Guidance In March 2013, the SEC s Division of Investment Management staff issued guidance concerning whether certain interactive content posted in a real-time electronic forum such as a chat room or other social media ( interactive communication ) should be filed with the SEC after such posting. The guidance provides that in determining whether an interactive communication needs to be filed, investment companies and mutual funds should consider the content, context, and presentation of the particular communication or set of communications, and examine the underlying substantive information transmitted to the social media user. Consideration also should be given to other facts and circumstances, such as whether the interactive communication is merely a response to a request or inquiry from the social media user or is forwarding previously filed content. 25

26 SEC Division of Investment Management Guidance The guidance also provided specific examples of interactive communications that, in the staff s view, are required, or not required, to be filed: Generally Not Required to File An incidental mention of an investment company or fund unrelated to a discussion of the investment merits of the fund. Incidental use of the word performance in connection with a discussion of an investment company or fund. A factual introductory statement forwarding or including a hyperlink to a fund prospectus or to information filed pursuant to Section 24(b) of the Investment Company Act of 1940 or Rule 497 of Securities Act of An introductory statement not related to a discussion of the investment merits of a fund that forwards or includes a hyperlink to general financial and investment information such as discussions of basic investment concepts or commentaries on economic, political or market conditions. Responses to a social media user s inquiry that provides discrete factual information that is not related to a discussion of the investment merits of the fund. Generally Required to File A discussion of fund performance that provides specific mention of some or all of the elements of a fund s return or promotes a fund s return. A communication initiated by the issuer that discusses the investment merits of the fund. 26

27 SEC Risk Alert on Investment Adviser Use of Social Media In recognition of the rapidly accelerating use of social media by the financial services industry, the SEC s Office of Compliance Inspections and Examinations published a Risk Alert in January 2012 that highlighted staff observations regarding compliance obligations and social media usage. Compliance Program: The staff urged investment advisers to consider whether compliance programs and procedures should specifically address social networking activity, for example, by establishing usage guidelines, content standards, monitoring, approval and certifications procedures. Third-Party Content: The staff noted the compliance obligations implicated by third-party postings on firm and third-party social media sites. For example, the staff indicated that the use of social plug-ins such as the like button could be considered testimonials under the Advisers Act Rule 206(4)-1. Recordkeeping Responsibilities: The staff reiterated that the recordkeeping obligation does not differentiate between various media. For example, investment advisers that communicate through social media must retain records of those communications if they contain required records under the Advisers Act. 27

28 Other Federal Regulatory Guidance 28

29 Recently Released NLRB Advice Memorandum In September 2014, the National Labor Relations Board (NLRB) Office of the General Counsel released an Advice Memorandum regarding the lawfulness of an employer s social media policy. The Advice Memorandum was originally issued in 2012 but only released to the public in The NLRB found that requiring employees, when they identify themselves as the employer s employees on social media, to state that the views expressed are their own is lawful. The employer has a legitimate interest in protecting itself against unauthorized postings purportedly on its behalf and the requirement would not unduly burden employees in the exercise of their statutory rights. Directing employees not to link or refer to the employer s website absent prior written approval from the employer is unlawful because employees will be hindered in exercising their protected rights under the National Labor Relations Act if, when discussing their work-related concerns and complaints on social media, they cannot refer third parties to the employer s website to support, and garner support for, their position. Further, the employer s rule prohibiting employees from posting material that is embarrassing to another person, the employer, or customers is unlawful because employees would reasonably construe this rule to bar them from discussing work-related complaints, particularly those involving their managers. 29

30 2013 NLRB Advice Memorandum In July 2013, in response to a FOIA request, the NLRB released an Advice Memorandum addressing the lawfulness of an employer s social media policy. Building upon guidance provided in prior advice memoranda, the NLRB concluded that the employer s social media policy would reasonably be construed to chill the exercise of employees protected Section 7 rights in violation of the National Labor Relations Act. The NLRB found that the policy s prohibition on disclosing confidential or non-public information was unlawful because the terms were so vague that employees would reasonably construe it to mean they could not engage in their protected right to discuss the terms and conditions of their employment. In addition, the NLRB concluded that the policy s prohibition on employee use of the employer s logo, trademarks or graphics was unlawful. Although the NLRB acknowledged the employer s proprietary interests in its trademarks, it found that the employees non-commercial use of electronic leaflets, cartoons or photos of picket signs containing the employer s logo did not infringe the employer s interest. Further, the NLRB found that the prohibition on videotaping or photographing the employer s premises was unlawful because such a prohibition would reasonably be interpreted to prevent employees from using social media to communicate and share information regarding their protected activities. Notably, the NLRB stated that social media guidelines are a mandatory subject of bargaining, as they may impose an independent basis for discipline. Thus, employers must seek union approval of social media policies before implementing them. 30

31 FTC Endorsement Rules and Pinterest Contest On March 20, 2014, the FTC issued a letter to Cole Haan indicating that a Cole Haan contest violated the endorsement obligations under the Federal Trade Commission Act (the FTC Act ). Cole Haan offered participants a prize for creating Pinterest boards featuring the company s shoe images. Under these facts, the FTC determined that the participants entry into the contest constituted an endorsement and under the FTC Act a material connection between a marketer and endorser requires disclosure where their relationship is not otherwise apparent from the context. The FTC found that the contest rules did not properly instruct contestants about these disclosure obligations. The FTC ultimately decided not to pursue enforcement action in part due to the fact that the FTC had not previously publically addressed the type of contest at issue and Cole Haan subsequently adopted a social media policy that adequately addressed the FTC s concerns. 31

32 Federal Trade Commission Guidance In March 2013, the FTC staff issued revisions to its May 2000 Dot Com Disclosures Guidance. The updated guidance addresses new issues that have arisen from technological innovations, including the trend towards accessing the internet on mobile devices and increased placement of advertisements on social media sites. The guidance makes clear that consumer protection laws apply to other online media platforms, including online advertising, marketing and sales, as well as activities in the mobile marketplace. Advertisements must be truthful and non-misleading; and any disclosures must be clear and conspicuous based on the overall advertisement. To make a disclosure clear and conspicuous, firms should consider, among other things: Reviewing the various devices and platforms consumers may use to view advertising and any corresponding disclosure; Including disclosures on space-constrained ads on sites such as Facebook or Twitter whenever possible; Designing advertisements so that scrolling is not necessary in order to find a disclosure; Displaying visual disclosures for a duration sufficient for consumers to notice, read, and understand them; and Using plain language so consumers understand the disclosures. 32

33 Federal Financial Institutions Examinations Council Guidance On December 11, 2013, the FFEIC released final guidance to address the applicability of federal consumer protection laws, regulations, and policies to activities conducted via social media by financial institutions. For purposes of the final guidance, social media is defined as a form of interactive online communication in which users can generate and share content through text, images, audio, and/or video. This includes, for example, Facebook, Google Plus, Twitter, YouTube, Yelp, and LinkedIn. The final guidance addresses three areas of risk inherent in maintaining a social media presence: compliance and legal risk, reputational risk and operational risk. A financial institution is expected to implement a risk management program that assesses and manages the risks particular to the individual institution, taking into account factors such as the institution s size, complexity, activities and third-party relationships. A risk management program should include, for example: A governance structure that directs how social media use contributes to the strategic goals of the institution and establishes controls and ongoing risk assessments of social media activities; Policies and procedures regarding the use and monitoring of social media and compliance with all applicable consumer protection laws, regulations, and guidance; A plan for reviewing content, including how to manage third-party contributions; Employee training on work-related use of social media and other potential uses of social media; Oversight process for monitoring information posted to the institution s social media sites; Reporting parameters to the institution s board of directors or senior management that enable periodic evaluation of the effectiveness of the social media program and whether the program is achieving its stated objectives. 33

34 Federal Financial Institutions Examinations Council Guidance In addition, the final guidance makes clear: Employee training and guidance should be provided to employees regarding official use of social media in circumstances where employees communicate officially on behalf of the financial institution. A financial institution is not expected to monitor all communications about the institution on websites other than those maintained by the financial institution or on its behalf. A financial institution is not required to monitor all internet communications for negative commentary about the firm, but rather should take into account risk exposure when creating internal approaches to monitoring and responding to such comments. 34

35 National Futures Association Guidance On December 24, 2009, the NFA enacted Interpretive Release 9063 to provide guidance on firms responsibilities in connection with online social networking facilities, e.g., blogs, Facebook, chat rooms, etc. The Release provides that any electronic content that can be viewed by the general public can be considered promotional material subject to NFA compliance rules. For example, blogs discussing commodity futures, options or forex that are written by a firm and posted on either the firm s website or a third party s site are considered promotional material. Further, a firm that hosts blogs, chat rooms or other forums where forex or futures are discussed must supervise the use of those communities. Supervision includes regularly monitoring the content of the site, taking down any misleading posts, and banning users for repeat or egregious violations. Similar requirements apply to Facebook and other sites that allow users to post to the firm s wall or other accessible area. A firm that uses audio podcasts or videos, whether located on its websites or on YouTube, that make specific trading recommendations or refer to past or future profits must be submitted to the NFA for approval ten days prior to use. Lastly, the Release provides that firms should have policies regarding employee conduct, including a requirement that employees notify the employer if they participate in any online trading or financial communities and provide screen names so that the employer can monitor employees posts periodically. 35

36 International Developments 36

37 International Organization of Securities Commissions IOSCO Survey Report In July 2014, IOSCO released a report on its survey of the use of social media and automated advice tools in the capital markets by market intermediaries and how regulators are overseeing these tools. IOSCO found that a number of intermediaries, with the exception of the US, do not allow the use of social media for business purposes. Of those that do, general usage by sales staff is not allowed and, in most cases, the use of social media was limited to a small group of senior managers. IOSCO also found that no regulator surveyed expressly prohibits social media use, nor has any regulator defined social media. The report concluded that while it is still too early to identify clear trends, the survey results helped regulators develop a better understanding of the tools, challenges, and applications of these mediums. IOSCO plans to revisit these issues. 37

38 3 Categories of Social Media Compliance with the UK Financial Conduct Authority SYSC 3.1.6R, 3.2.6R, 4.1.1R and 4.3.1R. COBS 4.10, MCOB 3.9 and 3.11, ICOBS 2.2.3R, COBS 4.3.1R, COBS4, MCOB3, ICOBS2.2 COBS 4.3.1R, COBS4, MCOB3, ICOBS2.2 Financial message should be easily identifiable and not be misleading. Adding #ad for promotional posts on twitter to identify promotions as such Ensure adequate targeting of messages to avoid confusion Ensure risk warning and other required statements are included use links and images if character limited CONTENT SUPERVISION RECORD KEEPING Should have adequate system in place to sign off digital media communications. Sign-off should be by an appropriate person in the company Ability to monitor non-compliant language COBS 4.11; MCOB 3.10; ICOBS 2.4 Firms should also keep adequate records Firms should not rely on digital media channels to maintain records. 38

39 EU Advertising Regulation The EU rules on advertising are extensive and include the following: E-Commerce Directive 2001/31 Electronic Communications Directive 2002/58 Unfair Commercial Practices Directive 2005/29/EC Comparative Advertising Directive 84/450 There are also country-specific laws governing the advertising regime which impact the regulation of social media accounts. 39

40 Cases and Enforcement Action Europe Belgium: Option-case (2011): Employee was rightfully dismissed for having criticized his employer on Facebook. When an employee makes use of a social network and identifies himself on such social network as a member of a company s personnel, he has to refrain from acting or making statements in a way which could either be disloyal or detrimental to the concerned company. Paris Criminal Court (2012): The trade union s delegate of a company posted an abusive message on the Facebook page dedicated to the company's trade union. As the management of the employer was clearly identifiable in the post, the employee was criminally liable. Asia SFC v. Lo Kam Chung: The Hong Kong Securities and Futures Commission ( SFC ) fined an individual for conducting a securities advisory business via Facebook without a license. In the accompanying press release, the SFC made clear that the provision of securities advice irrespective of the medium must be licensed. While the case does not directly address social media, the press release appears to indicate the SFC s technology neutral stance, i.e., that it is the responsibility of the regulated market players to devise means to comply with the relevant requirements and principles. 40

41 Recent U.S. Cases and Disciplinary Proceedings 41

42 Recent and Notable Cases U.S. Courts Maremont v. Fredman Group, Ltd (Oct. 10, 2014): A jury in the U.S. District Court for the Northern District of Illinois returned a verdict in favor of the defendants where the plaintiff claimed that the defendants, her then-employers, accessed her personal social media accounts without her authorization in violation of the Stored Communications Act. The employer accessed the accounts, which were used for the benefit of the employer, during the employee s medical leave of absence. While the verdict was in favor of the defendants, the case highlights the potential issues concerning an employer s access to social media accounts that are used by an employee to promote the employer s business. FINRA Jon Hickman, Letter of Acceptance Waiver and Consent ( AWC ) No (Oct. 14, 2014): Respondent settled charges that he failed to disclose his ownership of securities that were the subject of posts he made on Twitter and that such posts failed to be fair or balanced because they did not disclose risk or contingent factors and failed to provide a sound basis for evaluating certain facts discussed therein. FINRA fined Respondent $15,000 for the incidents and imposed a ten-day suspension from association with any FINRA member. 42

43 Recent and Notable Cases NLRB Triple Play Sports Bar and Grille, Cases 34-CA and 34-CA (2014): The NLRB found that an employee s clicking of Facebook s like button qualified as protected concerted activity and was protected under the National Labor Relations Act. The employee had been fired from his job after liking a Facebook discussion involving claims that employees owed additional income taxes because of the employer s withholding mistakes. The NLRB further found a provision of the company s social media policy unlawful because it was overly broad in stating that employees may not engage in inappropriate discussions about the company, management, and/or other co-workers on the internet or other forms of electronic communication. Purple Communications, Inc., Cases 21-CA , 21-RC , and 21-RC (2014): In a case reversing long-standing NLRB precedent, the NLRB found that employees have a presumptive right to use their employer s systems for statutorily protected communications on workplace issues. The NLRB did further hold, however, that an employer may provide a total ban on non-work use of only where they could demonstrate that special circumstances make the ban necessary to maintain production or discipline. The holding does not restrict an employer from monitoring its system to further legitimate management objectives. 43

44 Impact of State Facebook Laws 44

45 State Social Media Legislation Enacted Legislation Pending Legislation Arkansas New Jersey Arkansas New York California New Mexico** Connecticut Oklahoma Colorado Oklahoma Florida Oregon Delaware* Oregon Georgia Virginia Illinois Rhode Island Hawaii Louisiana Tennessee Illinois Maryland Utah Missouri Michigan Vermont Montana Nevada Washington New Hampshire* New Hampshire Wisconsin New Jersey Last updated February 18 th, 2015 *applies only to academic institutions **applies only to prospective employees 45

46 State Social Media Legislation Common themes: Many states take a broad approach: The state statutes generally prohibit employers from requiring an employee to disclose user names or passwords to an employee s personal social media account, or otherwise request access to his or her personal social media account. The statutes also contain broad anti-retaliatory provisions. Some states have broader language while others employ a more narrow approach in determining when an employer can require access to an employee s personal social media account. The broader approach: Some state statutes, for example, contain an exemption from the general prohibition on requesting access to an employee s personal social media account to allow an employer to gain access in order to comply with state and federal laws, rules, and regulations, caselaw, and the rules of self-regulatory organizations. The more narrow approach: Other state statutes, for example, either limit an employer s access to an employee s professional social media account (e.g., those accounts provided in whole or part by the employer) or permit access to an employee s personal social media accounts in cases where there is a reasonable belief that the account is relevant to an investigation involving allegations of employee misconduct or violation of applicable laws and regulations. 46

47 Recent Social Media Laws and Securities Exemptions Rhode Island In June 2014, the Rhode Island legislature passed a law that prohibits employers from requiring, coercing, or requesting that an employee disclose the passwords to a personal social media account, or to access the account in the presence of a representative. Notably, the law does not prohibit an employer from complying with a duty to monitor or retain employee communications that is established by a self-regulatory organization or under state or federal law or regulation to the extent necessary to supervise communications of insurance or securities licensees for insurance or securities related business purposes. Wisconsin In April 2014, the Governor of Wisconsin signed into law a bill that prohibits employers from requesting access to or observation of an individual s personal internet account. The law does not apply to a personal account or an electronic communications device of an employee engaged in providing financial services who uses the account or device to conduct the business of an employer that is subject to the content, supervision, and retention requirements imposed by federal securities laws and regulations or by a self-regulatory organization. 47

48 Trends Related to Estates and Social Media Delaware In 2014, Delaware became the first state to adopt a law recognizing social media accounts as property and allowing them to pass to a decedent s estate. A fiduciary provided with such authority has the same access as the account holder, and is deemed to (i) have the lawful consent of the account holder and (ii) be an authorized agent or user under all applicable state and federal law and regulations and any end user license agreement. Accounts provided by an employer but regularly used by an employee in the usual course of business are not subject to these provisions. Pending Laws New York, New Jersey and Georgia have all recently introduced bills that would allow the estate's executor to take control of, conduct, continue or terminate electronic accounts of the decedent. Bills have also been introduced in Connecticut and Virginia but these bills are narrower and do not provide full authorization to take control of the deceased user s accounts. Non-State Trends On February 12, 2015, Facebook announced a new feature that allows members to designate someone as their legacy contact to manage their account after a member dies. 48

49 Thank you. These are presentation slides only. The information within these slides does not constitute definitive advice and should not be used as the basis for giving definitive advice without checking the primary sources. 49