Misleading advertising continues to be one of the Competition Bureau’s enforcement priorities, and on January 18 the Bureau warned businesses to monitor for online reviews and testimonials posted by their employees that do not properly disclose the employee’s connections to the business.
Fake and biased reviews continue to be a growing problem for consumers. To avoid misleading consumers as to the authenticity of online reviews or ratings, the Bureau’s guidance requires employees who post reviews about the business they work for or its competitors to disclose their employment relationship. The Bureau’s notice warns that employers who turn a blind eye to employees who do not comply with these disclosure requirements could face enforcement action and potentially significant penalties under the Competition Act.
The reminder follows recent enforcement action against Montreal-based company Amp Me Inc., which will pay a partial penalty of $310,000 plus costs of $40,000 (in satisfaction of an imposed penalty of $1.5 million) to resolve concerns about false or misleading claims regarding the free nature of Amp Me’s mobile application and allegations that Amp Me purchased positive reviews from third parties to promote its business.1
What’s the big deal?
The Competition Act’s misleading advertising provisions prohibit representations to the public that are materially false or misleading. Representations can be made “by any means whatever,” including through online ratings, reviews or testimonials.
While it is not illegal for employees to post independent, honest reviews about the company they work for, compliance issues arise when an employee (or other third party) posts what appears to be an independent and unbiased review, when in fact there is an undisclosed material connection between the reviewer and the business. “Material connections” can include an employment relationship or the fact that the reviewer was compensated by the business in some form (including through payment, free product, etc.).
According to the Bureau, material connections such as an employment relationship between reviewers and the businesses they are promoting could affect how consumers evaluate the reviewer's independence and the weight they attach to the review.2 Because companies and their employees have an interest in posting positive reviews of their products, consumers might attach less weight to those reviews when they know they may be biased, which is why disclosure is critical.3
Penalties for non-compliance are serious. Consequences under the civil false or misleading advertising provisions of the Competition Act include administrative monetary penalties of up to the greater of $10 million ($15 million for each subsequent violation) or three times the value of the benefit derived from the deceptive conduct (or, if that amount cannot be reasonably determined, 3% of the company’s annual worldwide gross revenues). Under the criminal provisions, penalties include fines at the discretion of the court and/or up to 14 years in jail for individuals, in addition to possible compensation that may be sought by consumers.
To ensure compliance, the Bureau recommends that businesses:
- Implement a compliance program to prevent misleading reviews by employees. While the Bureau’s recent reminder focuses on employee reviews, compliance programs should cover not only employees, but others who may promote the company or its products, such as social media influencers. For companies taking advantage of social media and influencer marketing, please refer to our earlier update for more best practices.
- Train employees to properly disclose their business connection when posting reviews about the company or its competitors. In situations where it is impossible to make the employment relationship clearly visible within the review itself (for example, where a star rating is assigned), the Bureau recommends employees should avoid posting it altogether.
- Build an effective monitoring system to detect misconduct. While businesses may have limited control over their employees’ online activities, the Bureau has sent a strong signal that businesses cannot turn a blind eye to employees or others who are posting reviews on their behalf without properly disclosing material connections. According to the Bureau, “[a]nyone who writes or permits writing reviews that give a false or misleading impression to consumers could be liable under the Competition Act.”
While not legally binding, this reminder sets out the Bureau’s enforcement approach to fake and biased reviews. Businesses should take note and implement appropriate compliance measures to ensure testimonials posted by employees and other third parties on their behalf do not raise compliance issues.