banner generic

Insights

Direct Selling Alert

Social Media and Litigation Risk Management

| Published by Marika Hubble-Marriott

Development and growth often gives rise to new areas for claims and litigation. The challenge for the direct selling industry is to keep abreast of the ever increasing legal and compliance obligations.

As much as you are focused on the next wave of social media advances, sophisticated players will be simultaneously identifying and managing the risks associated with these developments.

A successful risk management strategy should incorporate elements of risk avoidance, prevention and reduction.   Some social media engagement, for example, live video streaming, presents a myriad of litigation risks.  The company policy to avoid such risks may be to ban live video content.   In contrast, sellers and consultants may be permitted to engage on other platforms and post content, provided they comply with the company’s social media policy. 

A social media policy should be specific to the product or service being offered and include the current and emerging forms of social media.   It should be underpinned by comprehensive policies that educate your team about legal obligations and the risks which may arise in this environment.

Part 1 of this article, Social Media and Litigation Risks identified 7 key areas which are relevant to the direct selling industry.   You can take steps to manage these risks by ensuring your social media policy and risk management strategy addresses the following:

1. False or misleading conduct.  To facilitate fast-paced engagement with consumers, most companies refrain from approving content before it is published.  This doesn’t mean you can avoid responsibility or rely on disclaimers to neutralise misleading statements about your product or service.

If a direct selling company becomes aware of false or misleading publications about its products (including Facebook comments and/or posts), the company is required to remove the material if it has the power or administrative privileges to enable it to do so.

If you do not control the platform on which the material was published, you need to take immediate and reasonable steps to have the publication taken down, document those steps and/or publish corrective material.

To avoid a tirade of objections about restricting content, your policy should provide a clear description about appropriate content and the circumstances in which content will be removed.  This is a chance to educate employees and consumers about the difference between enthusiastic and passionate testimonials, as distinct from content which provides a false, misleading or deceptive impressive about your product or service.

2. Consumer law entitlements.   Social media provides various avenues for engagement directly with the company, its sellers or consultants and/or the online community.   The risks which can arise from these informal and rapid communications can be reduced if your team is trained in the consumer law obligations and requirements.

When a regulator becomes involved in a complaint in this area, it will often consider the existence and appropriateness of any compliance training program.  The most effective programs are scenario based, that is, examples of how the obligations and requirements apply in the context of how the company interacts with, and markets and sells to, consumers.  

Russell Kennedy, in conjunction with Content Maximiser, has already developed a bespoke Australian Consumer Law on-line compliance training program for the direct selling industry.   The series of videos can be accessed on-line or from a mobile device and includes multi-choice questions at the conclusion of the training scenario.   The product has already been customised for a leading direct selling company, and will be launched at the DSA’s June conference.   You will have an opportunity to register your interest for this innovative product and to offer your team an eLearning experience and track completion of the program. 

3. Defamation.  Your obligations in relation to publication of defamatory content over which you have control are the same as with misleading and deceptive statements.  You should monitor social media publications and, if defamatory content is posted (usually in relation to an individual consultant or consumer), act promptly to remove it so that your company is not held liable for continuing publication.

Avoid the risk of re-publication of defamatory content by thoroughly reviewing material which you like, comment on, or re-post.   If you receive a defamation claim, take screenshots of the content (so as not to destroy evidence) and immediately remove.  This is not an admission of guilt.

The Australian States and Territories have substantially uniform defamation laws which provide for an early resolution process prior to litigation.  If you receive an initial document, often referred to as a “Concerns Notice”, you have a period of time to offer to make amends (which usually involves the publication of a reasonable correction), without admitting or affecting liability.   This is an important process to follow because costs can be awarded against your company on a higher basis if the claim succeeds and you unreasonably failed to make a settlement offer.

4. Reputation.   An active and engaged social media community is essential for most direct selling companies. It can work wonders for building trust, making consumer experiences relatable, and you can even leverage published content.   Whether this community engages with your brand or becomes part of your brand, there are implications in terms of reputation.   The culture you are aiming to create is akin to ambassadors with “whistleblower” privileges.  You want their publications to enhance your reputation, but you want to know about content, in particular on private Facebook and Instagram accounts, which is contrary to your social media policy.

All company social media accounts and usernames should be registered and it should be clear which websites, groups and accounts are endorsed by the company to prevent unauthorised use. Your policy should address what is to occur with individual accounts operated by your team in the event that they cease to be part of your company and refuse to delete the accounts or promote an ongoing affiliation with your product or service.

Appropriate risk management strategies can empower your community to both promote and protect your reputation within the guidelines of your social media policy.  After all, the reputation of your company and its products or services is critical to the success of your business and of your sellers and consultants.

5. Product liability.  Social media platforms provide fertile ground to tout for consumer claims or otherwise incite group action which would have previously been dealt with on an individual basis.   If a product
liability complaint is made to a direct seller on social media, you should respond promptly and by private message where possible.   It is preferable to respond to claims by way of a telephone conversation or email communication and not on social media.

Any discussion about potential claims in a public forum should be avoided and you should monitor social media platforms for advertisements touting for class action claims.   In the event that an issue arises with respect to the use or application of your product, particularly if there is the risk of injury or damage, social media provides a timely and accessible means of communicating pertinent information to your consumers and the social media community.   Any notifications about potential product liability should be prepared with the assistance of your legal and public relations advisors

6. Privacy.  The privacy policies of all direct selling companies should expressly state that these obligations extend to social media.  Training programs should assist representatives who engage on social media with customers and potential customers to understand the nature and purpose for which consumer information was collected and how it can then be used.  This applies whether the information is collected directly in a traditional sense or via social media.

The lack of formality in this environment creates the risk of blurred boundaries and the inadvertent disclosure of personal information or the use of information other than for the purpose for which it was collected.   While consumers may readily engage on social media, the Privacy Act obligations remain paramount (for direct selling companies with an annual turnover in excess of $3 million which carry on business in Australia – with some exceptions).   Take steps to avoid the risk of disclosure of personal information which makes you more anti-social than social!

7. Intellectual property.   Social media monitoring will often involve alerts which are triggered by the use of your company, business or product name.  This process can often uncover publications which infringe your intellectual property rights including the use of trademarks, material subject to copyright and disclosure of trade secrets.

We have advised direct selling companies in relation to ownership rights claimed by sellers and consultants in relation to product content they have developed about the company or product, but independent of, the company.  A comprehensive social media monitoring program will often provide the first indication of a third party infringement which would otherwise go undetected in the usual course of business.  For example, publications might reveal a counterfeit product or an unauthorised account.   You should obtain immediate legal advice in relation to the infringement of your intellectual property as content can be taken down, products not offered for sale and undertakings obtained to restrain ongoing conduct.

The opportunities presented by social media for the direct selling industry are limitless.  With each opportunity comes risk, and each company will have a different appetite for risk in relation to their engagement with social media.  

To paraphrase Winston S. Churchill, a pessimist sees the risk in every social media opportunity; an optimist sees the opportunity in every risk.   Pessimists and optimists alike are welcome to contact Marika Hubble-Marriott if they require any further information or specific advice.

Marika acknowledges the assistance of Kate Vanrenan in preparing this article.  

If you require any further information, please contact Marika Hubble-Marriott or Rohan Harris.

This article was first published in the DSA Connect Newsletter, June edition.