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Tuesday
Apr252017

Negative Reviews: Seeing Stars or Trolls? Here's What You Can and Can't Do

Franchise LawyerChair, Franchise & Distribution Practice Group

 

by Barry Kurtz
818.907.3006

 

 

Trolls aren’t just fictional creatures living under bridges in fairy tales – today they are anonymous but highly visible creatures plaguing individuals and businesses on social media. They’re angry, vindictive and financially destructive, particularly for businesses that rely heavily on reputation.

Franchise Reviews

Franchised businesses are not safe either. Though most customers recognize a national brand as having certain standards set by the franchisor, individual franchisees can still suffer from bad reviews – particularly those in service industries. Bad reviews can infect the entire system.

Recent lawsuits and legislation may address some of the problems of anonymous negative reviews and outright defamation. Most of these decisions and laws benefit the consumer, but there are some practical steps business owners can take to fight back.

Here’s what every business owner should know:

Non-Disparagement Clause Laws

First, clauses written into service contracts to protect the business from negative online comments won’t help. Incorporated into the fine print, this now infamous non-disparagement clause used by a hotelier in New York may have gone too far:

If you have booked the Inn for a wedding or other type of event anywhere in the region and given us a deposit of any kind for guests to stay at USGH there will be a $500 fine that will be deducted from your deposit for every negative review of USGH placed on any internet site by anyone in your party and/or attending your wedding or event. If you stay here to attend a wedding anywhere in the area and leave us a negative review on any internet site you agree to a $500 fine for each negative review.

For a franchise or business owner, $500 per negative review may not seem like much compared to the potential damage bad reviews wreak on future business.

That may have been how founders of Master Matchmakers felt, when the company chose to put a gag order clause in contracts with clients. When one client took to Yelp to express his dissatisfaction, the company responded in kind. The CEO denounced the client on Yelp as well, using the client’s employer’s listing to describe this particular lonely-heart customer as an “unscrupulous business person” who maligned Master Matchmakers for “personal gain just to extort money”, according to the L.A. Times.

Long before this incident though, legislators in California felt a need to protect consumers’ free speech rights. Thus the state enacted Assembly Bill 2365, a/k/a the Yelp Law, in 2014. Other states followed suit with similar legislation. And then it went federal.

Barack Obama signed the Consumer Review Fairness Act (CRFA, or the Act) in December 2016. The bill had non-partisan support.

The new federal mandate protects consumers expressing opinions about a business’s goods or services online – by penalizing businesses that threaten to act on, or actually try to enforce, non-disparagement clauses in their customer contracts.

In other words, companies that include gag order clauses prohibiting clients from posting negative online reviews can no longer enforce those contractual provisions, not just in California, but across the nation.

Before CRFA: Still a Losing Battle

Even before the federal CRFA went into effect, businesses had a tough time proving their supposed right to enforce the non-disparagement clauses in court. For example:

Palmer v. Kleargear.com: Husband and wife John Palmer and Jennifer Kulas ordered products amounting to less than $20 from kleargear.com, paying for the items via PayPal in 2008. The couple never received the items, attempted several times to contact customer service, and were eventually told the products weren't paid for, therefore the order was cancelled.

A few months later, Kulas posted a negative review on RipoffReport.com, criticizing the retailer's customer service reps.

Three years later, KlearGear sent a "Take Down" email to Palmer, demanding the couple remove the bad review within 72 hours or pay the company $3,500 – restitution for violating a non-disparagement clause in the business's Terms of Sale and Use (TSU). Arguments between the two parties ensued, and the retailer eventually submitted a negative report to a credit reporting agency.

In their lawsuit, Palmer and Kulas claimed violations of the Fair Credit Reporting Act, defamation (this story got national media attention) and emotional distress.

A federal court in Utah awarded Palmer and Kulas a default judgment – KlearGear failed to respond to the lawsuit. The judgment was more than $300,000 plus legal costs and attorneys' fees which the plaintiffs have yet to collect.

(This is the case that inspired legislators to write California's Yelp law, as well as the federal CFRA.)

Duchouquette v. Prestigious Pets, LLC: Robert and Michelle Duchouquette signed a $118 contract with Prestigious Pets of Dallas for pet sitting services. While on vacation, the Duchouquettes noticed via in-house cameras that their fish bowl was getting cloudy. Upon return, they gave Prestigious Pets a one star review on Yelp, explaining:

The one star is for potentially harming my fish, otherwise it would have been two stars. We have a camera on the bowl and we watched the water go from clear to cloudy. There was a layer of food on the bottom from way too much being put in it. Even if you don’t have fish, you should be able to see the change in the bowl and stop putting in food. Better yet, ask us how much to feed if you are unsure.

The pet service could have offered to refund the money in return for a better review. Instead, the business chose to “go nuclear”, suing for up to $1,000,000.

Prestigious claimed the contract did not cover fish care, though the sitter agreed to feed the fish anyway; and that media interviews with the Duchouquettes cost the company lost profits, devaluation of its business and other damages.  Prestigious also claimed the Yelp review constituted defamation because it:  was calculated to injure the business's reputation, alleged lack of pet care skills, and falsely accused the company of violating Texas's Cruelty to Non-livestock Animals law.

A Dallas district court judge threw the case out.

Fight Fairly and Thoughtfully

Franchise Online Reputation Management

Suing bad reviewers may be an uphill battle but it’s not impossible to obtain restitution, even from anonymous reviewers. Before initiating a lawsuit though, businesses should ask these questions:

Can the Business Handle the Truth?

Is there any veracity in what the reviews are saying? Honest feedback can be valuable.

Sometimes a slew of negative online commentary can stem from one employee’s attitude when dealing with customers – in that case a personnel change in either staff or management can turn the tide. Similarly, multiple comments about atmosphere could also be a problem – maybe it’s time to upgrade the lighting, furniture, restrooms or lease another space altogether.

Maybe it’s time to improve the menu or offer more choices. Franchisees should consult the franchise agreement and the franchisor to find out what changes, if any, will be allowed. Franchisors are reluctant to make substantial changes to their menus to satisfy individual tastes.

Have Stellar Reviews?

Almost every business has at least a few happy customers. Some of them are even generous enough to share their positive experiences online without being prompted to do so.

Business owners should try highlighting some of these and sharing them on social media; capturing screenshots and posting to the business’s Instagram and Facebook accounts; quoting the text on the business’s website; or retweeting when clients shout-out positively on Twitter. In short, a business should go viral with the good stuff. Again, franchisees should consult their franchise agreement and the franchisor to determine what they can post since most franchisors control system social media to protect their brand.

How Best to Respond to Reviewers?

Businesses should respond with caution, and in a positive way. Even if management responds via private message or email, the dissatisfied customer can still post the communication (or portions thereof) on social media.

Why do some negative reviews go viral? Most of the time, it’s because of the business owner’s aggressive response. (Click: SoCal restaurant rant re negative reviews, for an example of what NOT to do.)

Instead, try something along these lines:

Dear Ms. Doe, I’m sorry to hear you had such a negative experience at our restaurant, but do appreciate that you took the time to point out some problems. We are looking further into these issues. In the meantime, we hope you will revisit us soon, as we are working hard to remedy the problem. Sincerely …

This is a general, public response for something like Yelp or Facebook. Privately, management may want to also offer store credit, full reimbursement, free products, etc. in exchange for an updated review or a takedown of the negative commentary. Warning: Offering refunds in public may encourage opportunistic trolls to post more negative reviews, in the hopes of gaining some freebies. Proceed with caution.

The critical thing for any business owner to remember here, is the importance of monitoring reviews. Management should keep track of what’s going on with business listings on Yelp and TripAdvisor, on the company Facebook and Twitter feeds, on Instagram and Reddit.

The proper response could turn a disgruntled consumer into a life-long fan of the franchise system. The magic remedy may be a sincere reply from the president of the franchise, or it may take 100 bags of sour cream and onion potato chips, according to this post on fastcasual.com regarding negative restaurant reviews.

However management chooses to respond, it’s important to avoid knee-jerk reactions (give it a day or two), and react positively and logically – which means some posts may be safely ignored without too much damage. And remember that some franchise systems prefer to handle responses to online negativity at the corporate offices, while others will allow their franchisees a little leeway.

A business owner who can prove defamation by a reviewer may want to litigate after evaluating the financial damage. The trend for prevailing has historically been in favor of the reviewer, but there may be a sea change as more and more businesses decide to fight back.

Barry Kurtz is the Chair of our Franchise & Distribution Practice Group

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Thursday
Apr132017

Negative Reviews: Franchises Pursuing Truth, Justice, & Defamation Claims

Franchise LawyerChair, Franchise & Distribution Practice Group

by Barry Kurtz
818.907.3006

 

Franchised businesses, particularly restaurants, hotels, automotive servicers and others have been falling victim to the digital age. Many consumers now choose the places they do business based on what they read on Yelp, TripAdvisor, and other internet review sites.


This is great for franchises with mostly glowing, 5-star reviews. But every now and then, a business may fail to please a customer, and the results can be financially hurtful, if not devastating. All it takes is one eloquently written negative review, or multiple not so well-written posts by one particularly angry troll.

So how should management react? Here’s what every franchise owner, manager and marketer should know about the legal ramifications.

Consumer Anonymity in Social Media

It’s all about protecting free speech. Most recently:

Twitter filed a lawsuit against the Department of Homeland Security, and Customs and Border Patrol to protect the identity of user @ALT_uscis.

This anti-government account is just one of many “Alt Twitter” profiles that have popped up since President Donald Trump moved into the White House. And @ALT_uscis proved especially vocal when it came to denouncing the president – which prompted a Customs and Border Patrol summons requesting Twitter reveal the identity of this user to the government.

Twitter refused to do so, primarily because the summons didn’t cite a compelling or legitimate reason for the social media platform to comply. The government withdrew its request, and Twitter has since dropped the suit.

Revealing anonymous user IDs has been historically unsuccessful:

An Oregon hotelier attempted to sue TripAdvisor for the scathing comments made by the site’s user “12Kelly”. This reviewer claimed to have stayed on the property in March of 2014, described the rooms and food as “nasty”, the owner a weed smoker, and a front desk employee as someone who was having phone sex, presumably in the presence of the TripAdvisor reviewer. The profile for “12Kelly” said the site’s user was from Prescott, Arizona.

Hotel management couldn’t find a guest from March 2014 hailing from Prescott that would have matched the “12Kelly” user profile, so they sued TripAdvisor for defamation and filed a motion to compel the website to reveal the identity of 12Kelly, with the intention of adding that user later as a co-defendant.

According to the Oregon Restaurant and Lodging Association, the defamation suit failed because of a state media shield law. 12Kelly remained anonymous, and TripAdvisor continued business as usual.

But a new day in cyber litigation is dawning, and we may be seeing sparks of hope in combatting anonymous reviewers. If a franchise or business is the victim of outright lies, and can prove that is so, a defamation suit may succeed.

Take the case of Yelp v. Hadeed Carpet Cleaning. Hadeed filed a defamation lawsuit against seven anonymous reviewers on Yelp who allegedly falsely claimed to be customers. Hadeed served a subpoena on Yelp, seeking the identities of these John Does.

Though Yelp objected because of free speech rights, a circuit court and an appellate court in Virginia enforced Hadeed’s subpoena. The appellate bench stated that free speech rights of consumers should be balanced against a business’s right to protect its reputation.

A Virginia supreme court decided for Yelp however, but strictly on jurisdictional grounds, saying Hadeed should have brought the suit in California where Yelp headquarters are located. The court refused to consider the First Amendment questions. Given that both the trial and appellate courts found for Hadeed, the company may have a strong case.

And a retailer in Texas recently emerged victorious against anonymous employees who posted derogatory comments:

Glassdoor, Inc. operates a free jobs website, which invites users to rate their current or former employer companies. Texas retailer Andra Group, LP claimed several comments on Glassdoor were false and defamatory. The statements said Andra’s hiring practices were illegal and in violation of labor laws; that racial harassment was common; and that the company hired illegal immigrants.

Andra did not intend to sue Glassdoor, but wished to investigate potential claims of defamation or business disparagement against the website’s users. Glassdoor argued First Amendment rights for their users and filed an anti-SLAPP motion – a motion to strike down a Strategic Lawsuit Against Public Participation.

The Appellate Court in this case rejected the First Amendment argument, as those rights must be balanced against legitimate business disparagement claims. It also denied Glassdoor’s anti-SLAPP motion, because Andra had evidence of monetary damages (loss of qualified job candidates and additional costs for new recruiting).

Andra was granted its petition to take depositions to learn the identity of two Glassdoor users. A defamation suit may be pending.

Franchises: Fight Fair, but Fight Back

As noted in a previous blog addressing a franchisor’s negative publicity, it’s tough to fight a bad review. First Amendment rights are fiercely protected in the U.S., and defamation is hard to prove.

However, it’s not impossible. And though some may want to force websites to reveal the identities of anonymous reviewers, this is not the most financially feasible option. Stay tuned, we’ll tackle other relevant laws concerning internet reviews as well as other options available for franchises fighting back, in our next blog: Seeing Stars or Trolls? Here's What Franchises Can and Can't Do.

 

Barry Kurtz is the Chair of our Franchise & Distribution Practice Group. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Friday
Sep182015

Online Piracy: 9th Circuit Cautions Copyright Holders re DMCA Takedown Notices

 

Franchise Agreement LawyerIntellectual Property Attorney

 

 

by Tal Grinblat
(818) 907-3284

 

A mother who uploaded a 29 second video to YouTube probably never dreamed she'd wind up with over a million views and a lawsuit by a major music publisher that went to the Ninth Circuit court of appeal.

Stephanie Lenz first videotaped her toddlers cavorting in her kitchen back in 2007 – Prince's Let's Go Crazy was playing in the background. She posted the video online along with the title "Let's Go Crazy" #1 to share with her family and friends. About four seconds into the video, Lenz asks her thirteen month-old son “what do you think of the music?” after which he jumped up and down while holding a toy.

An employee of Universal's music division (acting as Prince’s publishing administrator responsible for enforcing his copyrights) found the song on YouTube, considered the video's title and Lenz's question to her son and other details, to conclude the song was the focus of the video. Universal then sent YouTube a takedown notice pursuant to Title II of the Digital Millennium Copyright Act (DMCA) demanding the removal of Lenz's video.

To avoid infringement claims, YouTube complied with the DMCA notice and subsequently notified Lenz of the removal – citing Universal's claims of copyright infringement. Section 512(c) permits service providers, like YouTube to avoid copyright infringement liability for storing users’ content if the service provider “expeditiously” removes or disables access to the content after receiving notification from a copyright holder that the content is infringing. 17 U.S.C. § 512(c).

Lenz responded with a counter-notification to Universal, asserting fair use of the Prince song, and a demand that YouTube reinstate the video.

Abuse of the DMCA

If an entity abuses the DMCA notice procedure, it may be subject to liability under §512(f). That section provides:

Any person who knowingly materially misrepresents under this section—

(1) that material or activity is infringing, or

(2) that material or activity was removed or disabled by mistake or misidentification, shall be liable for any damages.

The 9th Circuit, in considering Lenz's claims that Universal misrepresented Lenz’s copyright infringement in their takedown notice to YouTube, questioned whether or not Universal abused the takedown procedures by not first evaluating whether or not the alleged infringement constituted fair use.

The Copyright Act of 1976 defines fair use as use of another’s work for purposes of criticism, comment,  news reporting, teaching, scholarship, or research (17 U.S.C. § 107). The Act includes a four part test to determine what constitutes fair use:

(1) Purpose or character of use, including commercial or nonprofit purposes;

(2) Nature of the copyrighted work;

(3) Amount of the work used;

(4) Effect of the use of the work on its market value.

The three judge panel decided there was not enough evidence to conclude that Universal knowingly made misrepresentations of copyright infringement in the DMCA takedown because the copyright holder need only form a subjective good faith belief that a use is not authorized to bring a DMCA take down notice.  However, the Court made it clear that copyright holders must consider the doctrine of fair use before issuing takedown notices:

Copyright holders cannot shirk their duty to consider—in good faith and prior to sending a takedown notification—whether allegedly infringing material constitutes fair use, a use which the DMCA plainly contemplates as authorized by the law. That this step imposes responsibility on copyright holders is not a reason for us to reject it. 

Should a jury conclude that Universal ignored or neglected to assess fair use before sending the takedown notification, it will be liable for damages.  Similarly if in evaluating the evidence a jury finds Universal’s actions were NOT sufficient to form a subjective good faith belief about the video’s fair use or lack thereof, Lenz could again recover damages from Universal, even if Lenz’s damages are nominal.

An attorney at the Electronic Frontier Foundation whose goals include protecting free speech online and represented Lenz, issued this statement:

Copyright abuse can shut down online artists [sic]   political analysts or — as  in this case — ordinary families who simply want to share snippets of their day-to-day lives. Universal must stop making groundless infringement claims that trample on fair use and free speech.

Tal Grinblat is an Intellectual Property Attorney and Shareholder at our firm. Contact him via email: tgrinblat@lewitthackman.com or by phone: (818) 907-3284.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Monday
Jun222015

When Bad Things Happen to Good People...On the Internet

Business Litigation Attorney EncinoLitigation Attorney

 

by David Gurnick

818.907.3285

 

The internet has generated countless new ways to communicate and share thinking. Some posted information is negative, which can still be useful when messages are truthful, in good taste, and constructive. But some negative posts are false and abusive.

Some ways and places that negative comments get posted are: 

  • Legal Solutions Revenge ReviewsComments on social media like Facebook or Twitter.

  • Negative comments on review sites, like Yelp, ConsumerAffairs.com, TripAdvisor.com or RipoffReport.com.

  • Negative websites, like disney-sucks.com, paypalsucks.com, allstateinsurancesucks.com, verizonpathetic.com, or untied.com.

  • Negative posts will appear soon on new .sucks domains, which recently became available.

  • Revenge posts arising from personal and business relationships.

Avoid Knee-Jerk Reactions

There are numerous ways to react to negative comments on the internet. Sometimes it is better to ignore the comment. A tweet or Facebook post, for example, may come and go quickly, replaced by other comments and updates. In contrast, a response may generate more negative comments.

After Toys R Us sent a cease and desist letter to an individual who used Roadkills-R-Us on the internet, the recipient posted the chain of correspondence, and created a satirical website. These have stayed online for years. It might have been better for the company to not respond.

Another possible reaction is to encourage others who are satisfied or have good things to say, to leave positive feedback online. Those comments help move negative messages down in prominence.

When a post is too negative or problematic to ignore, some legal steps can be considered.

Anonymous comments on public forums or message boards present a particular challenge. This is because federal law protects their hosts. The Communications Decency Act ("CDA") makes a forum or message board operator immune from liability for content created by third parties.

Congress passed the CDA to promote unfettered, unregulated free speech on the Internet.  There is no need to protect speech everyone likes. CDA protection is for negative, hostile speech.

But CDA immunity does not prevent all relief for someone who is victimized by falsehoods, libel, slander, defamation or other Internet abuse. Some courses of action are available for victims.

When a false or harassing post appears, a wise step is to print it or make a screen shot, as a record of the content. This is important because the comments may be changed or deleted before relief can be obtained.

Consider the nature of the site where the improper statement appears, and whether the message may be supplanted or lowered in prominence by later posts, making it unnecessary to take action.

If necessary to respond, consider whether to do so publicly or privately or both. Sometimes a useful combination is a brief public reply, calmly refuting the false statement, and a thoughtful private response. Sometimes a grievance can be resolved by private communication. An unhappy customer may be willing to remove the prior comment, or post a further comment that the matter was resolved.

A cease and desist letter may be appropriate. Such letters may need to be stern and firm. But sometimes a lighter tone is useful. Jack Daniels, the famous whiskey distiller, sent one of the nicer cease and desist letters, an example worth following in some circumstances.

For remarks that exceed the bounds of propriety, it is sometimes possible to contact the website operator and ask that the comment be removed.

Some hosts will cooperate, whether as a matter of policy, or courtesy or goodwill. But many sites that host forums will not cooperate in removing content. For example, ripoffreport.com and consumeraffairs.com claim they will not remove any post whatsoever.

Internet Defamation & Libel

A web host’s immunity from liability does not protect people who post false and defamatory messages. They may be sued for defamation.

Charles Schwab, the well-known founder of Charles Schwab Corporation, brought a libel suit over statements in the website www.chuck-you.com. Currently (June 2015), the case is pending in a California Superior Court. In 2011 a medical school in Antigua, obtained an injunction in  a U.S. court against a former student who was defaming the school on the internet.

Bringing a claim is more challenging when speakers post anonymously. Courts have upheld a First Amendment right to speak anonymously. But the First Amendment does not protect defamatory speech. So trying to stay anonymous does not always work.

Internet connections are assigned a numeric Internet Protocol address. When posting online, the host server logs the originator's IP address. Sometimes, the numeric address can be obtained by subpoena to the host website and internet service provider. This process may expose the identity of whoever made an offending comment.

In one case a town official sought a subpoena to identify the anonymous poster of defamatory statements on a website. The Delaware Supreme Court ruled the plaintiff must try to notify and give the anonymous speaker a chance to oppose the subpoena request. The plaintiff was required to also show the court he could prove defamation. These are not easy procedures, but they provide a course of action that may expose anonymous speakers so they can be sued.

More recently, a New Jersey court agreed to issue subpoenas so a hospital could identify perpetrator(s) who hacked into its intranet and sent defamatory emails to employees. In 2012 a couple in Texas won a judgment of more than $13 million against (originally) anonymous posters who defamed them on an internet forum.

Other Remedies for Haters & Trolls

Some other courses of action include posting other content on the internet, using some of the same key words that are in the offending comment, so that search engine results will generate the later posted content; and asking Google to remove content pursuant to Google's removal policies

Similarly, some sites that post comments have policies or procedures addressing removal of inappropriate content. Ripoffreport.com, as an example, has an arbitration procedure. For a substantial fee, which obviously generates revenue, they will conduct an arbitration to determine if content should be removed. The ethics of this policy are questionable, but the cost is less than full blown litigation. A number of third party companies offer to assist in removing offending content, though at this time the effectiveness of these services is unclear.

For content that contains any threatening message, it may be appropriate to notify police authorities.

David Gurnick is a Litigation Attorney at our firm.  

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Tuesday
May192015

Claims Dismissed: Social Media Site's Reference Search Not a Background Check

Lawyer for EmployerEmployment Defense

 

by Nicole Kamm
818.907.3235

 

Good news for employers using social media to vet job applicants: A Federal District Court recently ruled the technology used in LinkedIn's Reference Search does not constitute a “consumer background check” of employees and job candidates.

Reference Search provides a list of coworkers or former coworkers of a particular LinkedIn member to potential employers paying for the service. Subscribers who use Reference Search are encouraged to send In-mail to the individuals on the list, presumably in an effort to find more information about the job seeker.

The plaintiff's in the lawsuit Sweet v. LinkedIn alleged LinkedIn’s search feature violated the Fair Credit Reporting Act (FCRA). The FCRA was enacted in 1970 to ensure consumer reporting agencies protect consumer privacy, and impart fair information.

Employers are entitled to conduct background checks, but under federal and state law must comply with several requirements, including obtaining written permission and making certain disclosures. They must also provide the reason(s) a candidate was not selected should something in the background check lead to an adverse decision in hiring or promotion.

Tracee Sweet and the members of her purported class contended they were passed over for jobs because of Reference Search results. She and three others sought to form a class on behalf of all LinkedIn members who had reports run on their professional backgrounds in the last two years through Reference Search.  

Plaintiffs alleged five violations of the FCRA:

1. LinkedIn is a consumer reporting agency, which failed to obtain required certifications.

2. LinkedIn does not verify or make reasonable efforts to verify, the identities of those using Reference Search, or the purpose for which those users are compiling reports.

3. The FCRA requires consumer reporting agencies to assure maximum possible accuracy of the information provided; LinkedIn failed to undertake any reasonable procedures to do so.

4. The FCRA requires agencies to provide a "Notice to Users of Consumer Reports", which includes a user's obligations to provide a notice to consumers when an adverse action is taken, in this case a refusal of employment. LinkedIn does not provide this Notice to Users.

5. Because LinkedIn provides information to users without inquiring into the users' purposes for obtaining the information, the social media site does not have reason to believe the users have permissible purposes as defined by FCRA.

The plaintiffs sought monetary damages, punitive damages, and attorneys' fees and costs. LinkedIn moved for dismissal, citing the plaintiffs' failure to state a claim, and prevailed.

The federal court judge held that:

1. The purpose of LinkedIn is for members to "share their professional identities online" – the information compiled through the site does not constitute a consumer report.

2. LinkedIn serves to "carry out consumers' information-sharing objectives", whereas a consumer reporting agency's purpose is to furnish information to third parties.

3. The information collected via Reference Search comes from the searcher's networks, not the employment candidate's networks.

4. LinkedIn does not market this information as reliable.

The plaintiffs may amend their complaint in future, so the case is not entirely put to rest yet. Arguably though, the information provided via Reference Search is not so different from the information an employer may glean by calling or emailing contacts s/he may already know at a candidate's former places of work.

Background Checks

For the moment, employers may continue to use social media websites as an informal type of background check without rising to the level of a “consumer reporting agency.” However, employers should only do so with caution. California employers are prohibited, under Labor Code §980, from:

1. Asking employees or prospective hires for usernames and passwords of their social media accounts;

2. Retaliating, by discharging, disciplining, or threatening job seekers or employees for refusing to provide their usernames and passwords;

3. Asking candidates or employees to log on to their personal accounts while in the presence of the employer, management, human resources representative, etc.

Employers using social media may also be at risk for discrimination claims though, should their findings result in hiring, firing or promotion decisions based on protected characteristics they may discover in search results.

For example, an employee who thinks s/he was passed over for a promotion because s/he Tweeted about personal medical conditions or political beliefs may allege Fair Employment and Housing violations.

Before Googling the next applicant or current employees, employers should consider the risks carefully and consult employment counsel.

Nicole Kamm is an Employment Defense Attorney. Contact her via email: nkamm@lewitthackman.com; or by phone: 818.907.3235

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