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.
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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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