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Employers Should Heed FTC's Recent Reminder
by: Yonaton Aronoff
Celebrity Ashton Kutcher recently got into hot water with
the FTC while serving as a guest editor of an online-only version of Details magazine (http://tinyurl.com/3qrzghz).
The magazine issue in question profiled several Internet companies in which Mr.
Kutcher invests, without disclosing those investments. In an interview with The
New York Times, the FTC's assistant director of advertising practices,
Richard Cleland, indicated that Mr. Kutcher's conduct "could be investigated"
by the FTC for potentially running afoul of FTC guidelines on product
Although the FTC later appeared to back away (http://tinyurl.com/6z75rhn)
from those comments, the episode serves as a useful reminder for employers
crafting and implementing social networking policies for their employees.
Effective December 1, 2009, the FTC issued revised guidelines on endorsements
and testimonials in advertising, codified at 16 C.F.R. § 255 (http://tinyurl.com/yz8f2kk). Under the revised guidelines,
employers and employees may be subject to liability for an employee's failure
to clearly and conspicuously disclose his or her employment relationship when
promoting the employer's product or service via a social networking platform.
As a result, employers must ensure that their social networking policies
include a requirement that their employees clearly and openly disclose their
relationship with their employer when promoting the employer's product or
services. As these recent events demonstrate, the issue is clearly on the FTC's
Does Your EPLI Policy Cover Lawsuits
Brought by the EEOC?
Written by: Julie Angelini
A federal court in Tennessee recently ruled that an
employer's employment practices liability insurance (EPLI) did not cover a $2.7
million settlement of a lawsuit brought by the EEOC (http://www.eeoc.gov).
After 10 Cracker Barrel Old Country Store employees filed charges of race
and/or sex discrimination with the EEOC, the EEOC sued Cracker Barrel under
Title VII. Cracker Barrel eventually settled the underlying EEOC lawsuit,
entering into a consent decree obligating it to place $2 million into a
settlement fund. In addition, Cracker Barrel incurred more than $700,000 in
Although Cracker Barrel gave proper written notice of the
EEOC lawsuit to its carrier, the Court ruled that Cracker Barrel was not
entitled to recover any of the $2.7 million under its EPLI policy. The Court
held that the language in the EPLI policy did not extend to the EEOC lawsuit
because the policy limited "claims" to proceedings brought by employees, and
the EEOC was not Cracker Barrel's employee. The specific language in the policy
defined a "claim" as "a civil, administrative or arbitration proceeding
commenced by the service of a complaint or charge, which is brought by any
past, present or prospective 'employee(s)' of the 'insured entity' against any
'insured.'" Based on this language, the Court found that the definition of
claim under the policy has a clear meaning that a covered proceeding must be
brought by an employee. The Court rejected Cracker Barrel's argument
that the underlying charges upon which the EEOC lawsuit was based were brought
by employees. As such, Cracker Barrel was not entitled to collect any of the $2
million settlement funds under its EPLI policy. The Court also found that the
insurance carrier had no duty to defend Cracker Barrel in the EEOC lawsuit, and
thus, Cracker Barrel was not entitled to recover its $700,000 in defense costs
Employers should review the definition of "claim" before
entering into an EPLI policy to ensure that certain proceedings, such as
lawsuits brought by the EEOC or other administrative agencies like the
Department of Labor, are not excluded from coverage under the policy.
Labor and Employment Trivia
Last week's question:
What is the "control test" and where is it used?
Answer: The control test is
used to determine if someone is an employee or independent contractor. It is
used to analyze the degree of "control" a company exercises over an individual.
Facts that provide evidence of the degree of control and independence fall into
three categories: 1) Behavioral: Does the company control or have the right to
control what the worker does and how the worker does his or her job? 2)
Financial: Are the business aspects of the worker's job controlled by the
payer? (e.g., how worker is paid, whether expenses are reimbursed, who provides
tools/supplies, and so forth) 3) Type of Relationship: Are there written
contracts or employee type benefits (i.e., pension plan, insurance, vacation
pay, and so forth)? Will the relationship continue and is the work performed a
key aspect of the business? Both the IRS many state governments, in an effort
to increase tax collections, have increased enforcement efforts against
employers who misclassify independent contractors.
This week's question: The
Social Security Act was signed into law by President Franklin D. Roosevelt in
1935. What was the bill's original name and how did the name change?
Please continue to send suggestions for trivia questions
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