Non Profit Report - October 2011

Date: October 6, 2011

Legal Issues Arising from Nonprofit Organizations' Use of Social Media -- Part Two
By: Megan C. Spratt
Last month, we examined some of the intellectual property, insurance, and solicitation issues surrounding a nonprofit entity’s use of social media [full article here].  This month, we turn to terms of use and employee policies.

Social Media Terms of Use
Nonprofit organizations and associations should have a policy in place governing the use of their social media by third parties, such as non-employees, members, donors, and the general public, as well as a system in place to monitor such use.  Specifically, nonprofit organizations and associations should be diligent in removing third party postings which could constitute defamation, misrepresentation, tortious interference with business relations, or other torts.  Third party users should also be expressly prohibited from disclosing proprietary, confidential, or legally privileged information, and from posting comments that violate the antitrust laws.  To address these and other similar issues with respect to monitoring, we have developed a set of sample guidelines for third party users of nonprofit organization and association social networking tools.  More information on defamation and antitrust issues follows.   

Defamation is a “false written or oral statement that damages another’s reputation.”  (The term libel is used to refer to a defamatory written statement, and the term slander is used to refer to a defamatory oral statement.)  While the law on defamation is virtually the same in both traditional and online media, the liability risk is potentially higher in the electronic and social media context because users often post information instantaneously without thinking through the consequences of their postings; the internet offers a myriad of opportunities to comment on a person or business; and the postings can be read and accessed by people all over the world.
The consequences can be severe: there have been numerous lawsuits alleging defamation based on online content.  To avoid being the target of such a lawsuit, users of social media should be reminded that libel and slander can cause irreparable damage to the reputation of a person or business, and that postings about a business or person made as statements of fact, if proven to be false, could form the basis of a defamation suit.  Users should also be aware that posts ostensibly made on an anonymous basis still may not protect the identity of the poster because users can be traced using IP addresses.           

In addition, nonprofits and particularly membership associations should be on the lookout for comments that may run afoul of the antitrust laws, such as postings on salaries, pricing, allocation of territorial divisions, boycotts (i.e., concerted refusals to deal or do business with others) and bid rigging.  Such discussions pose a real danger, since associations by definition bring competitors together.  The comments need not rise to an express agreement to restrict competition; the antitrust laws can be violated simply through informal communications that involve an implied understanding among the parties to hinder competition.  Therefore, if, in the course of monitoring social media, discussions that may potentially violate the antitrust laws are detected, action should be taken immediately to halt such discussions and remind users of the organization’s policy on the use of its social media by third parties.

Social Media in the Workplace
Social media has both advantages and disadvantages in the nonprofit organization workplace.  A principal advantage of employee use of social media is that it can be an effective marketing and public relations tool for the nonprofit organization.  Moreover, social media can effectively be used as a recruiting tool; many employers find social media helpful in gleaning valuable information on candidates, such as integrity and personality.  Conversely, a potential drawback is that the use of social media by employees may facilitate the disclosure of confidential or proprietary information concerning the nonprofit, such as business plans or financial and membership data. 

Generally, it is acceptable to investigate potential employees through their use of social media, so long as the nonprofit has legitimate access to the site and job applicants are warned that their social media pages may be searched.  But nonprofit organizations should ensure that the review of potential employees’ social media use does not lead to claims by applicants that they were discriminated against based on legally protected characteristics, such as race/color, disability, national origin, religion, age, pregnancy, and, in some states, sexual orientation.  That is, the nonprofit employer should be able to prove that such protected characteristics were not a factor in the hiring/employment decision.  

In addition, a comprehensive social media policy that provides specific guidance to employees on what conduct is and is not permissible should be developed, implemented, and monitored.  The policy should be tailored to the nonprofit organization’s specific needs (as opposed to adopting a generic template) and may include provisions that:

  • restrict the use of social media unrelated to work during business hours or while using the organization’s resources
  • prohibit the disclosure of confidential and proprietary information about the nonprofit organization on social media sites
  • outline protocols for social media use when evaluating job applicants, and
  • prohibit harassment and discrimination of coworkers, employers, and members on social media sites. 

It is recommended that the policy state that the employer may monitor all uses of workplace electronic equipment, including use of social media.  The policy should be distributed to all employees and all employees should be required to acknowledge and agree to comply with the policy.  Reminders about the policy should be provided to employees on a regular basis.   Managers should be trained on the content of the policy, and nonprofit organizations should strive to enforce the policy consistently.  Finally, it may be appropriate for the board of the nonprofit organization or association to periodically review and update the policy in light of the rapidly developing nature of social media (for example, once per year).
In summary, social media can be a great communications tool for nonprofit organizations and associations.  There are some potential legal risks, but they can be managed and should not ultimately dissuade nonprofits from using social media to help fulfill their missions.

Voluntary Worker Classification Settlement Program Implemented by the IRS
By: Stephen M. Schaefer
Employers can save money on past payroll taxes and “get right” with the IRS under new program

The Internal Revenue Service has implemented a new program that will allow employers, including tax-exempt organizations, to resolve past worker classification issues by voluntarily reclassifying workers as employees.  The IRS’s Voluntary Classification Settlement Program is primarily intended to increase tax compliance, but the Program will also have the effect of minimizing the reporting and financial burden on employers, as well as providing certainty for employers, workers, and the government regarding worker classification.  The Program will allow employers the opportunity to come into compliance by making a payment covering past payroll tax obligations.

An eligible employer can obtain relief from federal payroll taxes owed by the employer in the past, if the employer prospectively treats workers as employees.  The Program is designed for employers that incorrectly classified current workers as non-employees or independent contractors, but now want to correct the worker classification to classify those workers as employees.

Employers that are accepted into the Program will pay an amount equaling approximately one percent of the wages paid to the reclassified workers for the past year.  Participating employers will not be audited on payroll taxes related to those workers for prior years, and the employers will not be responsible for interest or penalties.  Employers participating in the Program will be subject to a special six-year statute of limitations for the first three years under the Program as opposed to the standard three-year statute of limitations that generally applies to payroll taxes.

Who is eligible:  In order to be eligible for the Program, the employer must (i) have consistently treated the workers as nonemployees in the past, (ii) have filed all required IRS Form 1099’s for the workers for the previous three years, and (iii) not currently be under audit by the IRS, the Department of Labor, or a state agency regarding worker classification.  To apply for the Program, an employer must file IRS Form 8952 at least sixty days before the employer wants to begin treating the workers as employees.

Caution:  An employer interested in applying for the Program should consult with legal counsel before contacting the IRS because an employer’s participation in the Program may result in other or unanticipated reporting and financial obligations to other federal and state agencies.

How Trademark Owners Can Prevent Their Marks From Becoming .XXX Domain Names
By: Dana O. Lynch
Trademark owners should be aware that the .xxx domain name will soon be available to the general public for registration on December 6, 2011. Although the .xxx domain name is designed specifically for the adult entertainment industry, trademark owners that are not in the industry can prevent their registered marks from being registered as .xxx domain names during the "Sunrise B" period, which ends on October 28, 2011.

In order to qualify for Sunrise B, a party must own a valid trademark registration that was issued prior to September 1, 2011. Unregistered or common law marks cannot be used as a basis to block .xxx domain name registrations during the Sunrise B period. In addition, a proposed .xxx domain name will be blocked only if it is identical to the text of a registered mark. If a Sunrise B applicant is successful, the blocked .xxx domain name will be removed from the pool of available domain names for a period of 10 years and will resolve to a standard informational web page indicating that the domain name is reserved and not available for registration.

Applications filed during the Sunrise B period are not granted on a first come, first served basis. All Sunrise B applications for the same domain name will be treated as submitted at the same time. If multiple parties file Sunrise B applications for the same mark, the domain name will be blocked as if there were only a single applicant, and there will be no refunds or apportionment among applicants. All Sunrise applicants will be notified of the claims made by other Sunrise applicants for the same .xxx domain name.

It is important to note that there is also a "Sunrise A" period that allows companies in the adult entertainment industry to register .xxx domain names that correspond with their registered trademarks. A Sunrise A applicant will be given priority over a Sunrise B applicant where the Sunrise A applicant requests registration of a .xxx domain name that is identical to a mark designated by a Sunrise B applicant.

The cost of blocking the registration of a .xxx domain name is relatively inexpensive. For example,'s fee is $199 per mark. All fees are non-refundable.

Lastly, on December 6th, the general public will be able to register .xxx domain names on a first come, first served basis. If a trademark owner does not qualify or take advantage of the Sunrise B period, it can defensively register its trademarks as .xxx domain names, if available. Where the trademark owner is not in the adult entertainment industry, its .xxx domain names will not resolve to the trademark owner's website.
As a defensive measure, trademark owners should be proactive and take steps during the Sunrise B period to block registration of their key marks as .xxx domain names and consider .xxx domain name registrations once generally available. Although a trademark owner will still have other legal options available after the Sunrise B period expires (including domain name dispute proceedings and lawsuits, depending upon the circumstances), the Sunrise B procedure is a less expensive way to protect key marks from being registered as .xxx domain names.