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Shut Up Already!

No matter what the charges are, taking out an ad to defend yourself isn't a good idea--at least until the Supreme Court has its say.

Just when your business is going strongly, a group of disgruntled former employees accuses you of unfair labor practices--and makes headlines. Scrambling to put out the fire, you send out press releases and appear on the local news defending your company's record. But if you do business in California, you'd better be especially careful about what you say.

The reason is a California Supreme Court decision released in May. The case concerned a large corporation, but some see implications for all businesses.

You may recall the story. In October 1996, CBS aired a program reporting on conditions in the third-world factories that produce shoes and clothing for Portland, Oregon-based Nike Inc. Several newspapers followed suit, alleging that the company exploited and abused workers in Vietnam and Indonesia.

Nike fought back, churning out press releases and full-page newspaper ads claiming that its workers were protected from abuse, that they were paid wages averaging double the local minimum, and that they got free meals and health care. Marc Kasky, a California citizen who'd read about the allegations, figured that Nike wasn't telling the truth. He sued under two California laws, one prohibiting false advertising and one prohibiting fraud in business.

The initial question for the courts wasn't whether the statements were true, but whether they were advertising. It's illegal to make false or misleading statements in an effort to sell products or services. Nike argued that its public defense of its practices wasn't advertising, so it was protected as free speech.

After two lower courts ruled in favor of Nike, the California Supreme Court ruled by a narrow majority that the messages counted as advertising because a commercial speaker directed them to a commercial audience for the purpose of promoting sales. Accordingly, any statements presented as facts must be true--and the company has to answer in court to prove that they are.

That's a dangerous ruling for employers in California, says Los Angeles attorney Lester L. Jones of Littler Mendelson. Jones explains that employers commonly have to respond to charges of discrimination or unfair labor practices. "Sometimes plaintiffs and their lawyers try to make a big splash in the media," he says. As two dissenting judges pointed out, those making the allegations are free to say practically anything without having to answer for it, while companies defending themselves face legal issues.

Nike will likely appeal the ruling. "I'm hoping the U.S. Supreme Court will either give us a precise definition of commercial vs. noncommercial speech, or agree that today the two are so intertwined that commercial speech is protected by the First Amendment," Jones says. If the court chooses to hear the case, it would still be three years before a definitive ruling would clarify the issue nationwide.

In the meantime, companies doing business in California had better be especially careful about what they say publicly. Says Jones, "Companies can defend themselves in the media, but with one hand tied behind their backs."


Steven C. Bahls, dean of Capital University Law School in Columbus, Ohio, teaches entrepreneurship law. Freelance writer Jane Easter Bahls specializes in business and legal topics.

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This article was originally published in the September 2002 print edition of Entrepreneur with the headline: Shut Up Already!.

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