Social Media Influencer Marketing & Related Legal Issues

Businesses sometimes try to reach a broader audience by enlisting “social media influencers,” a term for people who have achieved some level of popularity or recognition online. Social media influencers endorse a product or service offered by a business on platforms like Facebook, Instagram, Twitter, YouTube, or TikTok. In exchange, the business provides them with money, free products or services, or other rewards or incentives. There are four main tiers of influencers:

  • Nano influencers: 10,000 or fewer followers
  • Micro influencers: 10,000-100,000 followers
  • Macro influencers: 100,000-1,000,000 followers
  • Mega influencers: 1,000,000 or more followers

Using social media influencers can be a creative and cost-effective marketing strategy, but it does not come without potential problems and risks. The Federal Trade Commission has provided key guidelines in this area. Businesses and influencers may face legal trouble if they fail to comply with the guidelines. Moreover, poorly crafted contracts between businesses and influencers can lead to disputes between them down the road. Each side thus should understand their rights and obligations, to the public and to each other, before embarking on a business relationship.

FTC Guides for Endorsements

Section 5(a) of the Federal Trade Commission Act prohibits unfair or deceptive acts or practices that affect commerce. This law empowers the FTC to regulate endorsements. The agency has released guides concerning the use of endorsements and testimonials in advertising, which affect the activities of influencers. Updated in 2023, the FTC guides define “endorsement” broadly as any advertising, marketing, or promotional message for a product that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of someone other than the sponsoring advertiser. Something as seemingly minor as a tag in a social media post may be considered an endorsement.

The guides provide that an endorsement should reflect the honest opinions, findings, beliefs, or experience of an influencer or other endorser. An endorsement should not convey an explicit or implicit representation that would be deceptive if made by the business. It should not be presented out of context or otherwise distort an influencer’s opinion or experience. An influencer must have been a good-faith user of the product when the endorsement was given if an advertisement represents that the influencer uses the product.

An advertisement containing an endorsement by a consumer about the performance of a product will be interpreted as representing that the product is effective for the purpose depicted in the advertisement. If an advertisement contains an endorsement relating the experience of an influencer on a central or key attribute of the product, this likely will be interpreted as representing that the influencer’s experience is representative of what consumers will generally achieve with the product.

Expert Endorsements

When an advertisement says or implies that an influencer is an expert with respect to their message, their qualifications should give them the expertise that they are represented as possessing. For example, an endorsement of a car by a person described as an “engineer” would be deceptive if they work in the field of chemical engineering. An expert influencer can take into account factors that are not within their expertise, but their endorsement must be based on an actual exercise of the expertise that they are represented as possessing.

Disclosures in Endorsements

A clear and conspicuous disclosure is required when an influencer has a connection with a business that might materially affect the weight or credibility of an endorsement, and the audience would not reasonably expect that connection. (The FTC defines this as situations in which a significant minority of the audience would not understand or expect the connection.) Some types of material connections identified by the FTC are straightforward, such as when an influencer gets paid by the business or gets free products. Others may be less intuitive, such as when the influencer gets early access to a product or gets a chance to win a prize.

What does it mean to disclose a connection "clearly and conspicuously?" The FTC defines this phrase as requiring a disclosure to be easily noticeable and easily understandable by ordinary consumers. If a communication contains a visual representation that requires a disclosure, it should be made in the visual part of the communication. Similarly, if the representation is audible, the disclosure should be made in the audible part of the communication. If it is both visual and audible, the disclosure also should be both visual and audible. If the disclosure is visual, it should stand out from other visual elements in such ways as its size and location and the time for which it appears. If the disclosure is audible, it should be made at a volume and speed at which consumers can easily hear it.

"Unavoidable" Disclosures

The FTC specifically notes that a disclosure must be "unavoidable" in a communication that uses an "interactive electronic medium," which includes social media and the internet more generally.

Liability of Influencers and Businesses

The FTC guides provide that an endorser may be liable for false or deceptive statements that they make in their endorsements. For example, they cannot say that they personally used a product if they did not. A non-expert influencer may be liable for misleading or unsubstantiated statements about the performance or effectiveness of a product. In addition, an influencer may be liable if they do not disclose "material connections" with a business as described above.

Meanwhile, a business will be liable for misleading or unsubstantiated statements in endorsements. It may be liable for a deceptive endorsement even if the influencer is not liable. A business also will be liable if it does not disclose a material connection with an influencer.

Best Practices for Advertisers

The FTC advises businesses to communicate with influencers about the need to avoid misleading statements and make proper disclosures. It also urges businesses to keep track of whether influencers are taking these steps. If an influencer does not, a business should respond in a way that resolves the problem and prevents it from recurring.

Contracts Between Influencers and Businesses

Devising an agreement with an influencer to market a product or service may seem straightforward, and some provisions of the contract are. For example, the business and the influencer should agree on the scope of the influencer’s activities and the compensation for the influencer, including when compensation will be provided and whether it will involve money, other items of value, or a combination. Sometimes a contract might provide bonuses if the partnership achieves a certain level of success, which should be clearly specified. The parties should set out the duration of the relationship and any grounds for termination other than the expiration of the agreement term. The agreement should require the influencer to comply with applicable laws (and the FTC guides) and cooperate with the business in any regulatory action related to their content.

Other provisions may be less obvious, such as:

  • Messaging priorities: while the influencer should have some control over the content of the posts so that they are authentic, a business might provide certain facets of a product or service that it wants to emphasize
  • Content restrictions: the business may have certain types or styles of content that it wants the influencer to avoid
  • Editing rights: the business may want the influencer to submit the content in advance for review and approval
  • Content auditing: if the business does not review the content in advance, it likely will want to reserve the right to review the content after it has been posted and require the influencer to edit or remove non-compliant content
  • Content removal: the business may want to limit the ability of the influencer to take down content containing an endorsement once it has been live for a certain time
  • Tracking processes: the business may want the influencer to integrate certain elements in their content that will help with measuring its impact
  • Morals clause / behavior clause: this allows the business to back out of the deal immediately if the influencer engages in certain specified conduct that reflects poorly on the business
  • Non-compete clause / exclusivity provision: the business may want to prevent the influencer from endorsing similar products or services by their competitors, since this would dilute the strength of their endorsement
  • Intellectual property: while the influencer likely will retain ownership of their content, the business may want to have a license to use their content for certain purposes, which should be clearly outlined

A contract should designate the influencer as an independent contractor rather than an employee. However, a business still should avoid exerting too much control over the influencer’s work, since this could lead to their classification as an employee even if the agreement says otherwise. In case something goes wrong, moreover, the business may want to get insurance that covers liabilities created by the influencer’s activities.

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