LinkedIn Referral Policies Could Raise Legal Rift

By Ed Frauenheim

Feb. 17, 2011

The recommendations on LinkedIn pages are usually pretty straightforward: current and former business colleagues tout the person’s skills and experience.

But these online testimonials are anything but simple for companies. On one hand, allowing employees to write recommendations for current or former co-workers raises legal risks, especially for financial services firms. On the other hand, muzzling workers might smack of censorship and create resentment.

“Companies attempting to ban employees from writing LinkedIn recommendations are going to appear overly controlling and out of touch,” says Jennifer Benz, founder of San Francisco-based consulting firm Benz Communications. “Aside from being unnecessary and harsh, trying to enforce a policy like that is a poor use of resources.”

The recommendations are likely to grow in importance as LinkedIn profiles become a de facto résumé in the digital era. LinkedIn, a professional networking website where individuals can describe their career experiences and connect with others, has mushroomed over the past several years. Launched in 2003, it now boasts more than 90 million members worldwide.

The site makes it easy to ask for references by providing a template for those requests. “Recommendations help illustrate your achievements, project credibility and show why people enjoy working with you,” LinkedIn states on its site.

The testimonials, however, can trigger trouble for companies, some analysts say. LinkedIn endorsements raise the same legal risks for companies as other references for former employees, labor lawyer Shay Zeemer Hable, from the law firm Bryan Cave, argued in a Workforce Management commentary last year. If a former worker is suing for discrimination, Hable contends, a positive LinkedIn recommendation from a co-worker could harm the company’s case. Praise for a worker fired for poor performance could help that ex-employee argue that the company lied about the reason for termination.

Hable says she has “a number of clients that apply their regular reference policies to LinkedIn, meaning employees are not supposed to write recommendations that may appear to be on behalf of the company for colleagues at the networking site.”

Financial services firms have particular reason to worry about LinkedIn recommendations. A U.S. Securities and Exchange Commission regulation bans certain ads by registered investment advisers, including those that refer “directly or indirectly to any testimonial of any kind concerning the investment adviser.”

The Financial Industry Regulatory Authority Inc., which is known as FINRA and oversees securities firms, also has rules related to ads and testimonials that might come into play with LinkedIn recommendations.

A recommendation on LinkedIn merely stating that the writer used the services of an investment adviser likely would pass muster with the SEC, as long as it does not comment positively on the services, says Barry Schwartz, founding partner of ACA Compliance Group, a consulting firm based in Silver Spring, Maryland, that works with financial services companies. Still, Schwartz would like to see clearer SEC guidance on the issue.

SEC spokesman John Heine says that the commission hasn’t issued specific guidance related to the investment advisers’ ad rule and social media. Whether a LinkedIn recommendation violates the law “depends on the facts and circumstances,” he says.

Given the uncertainty, Schwartz says, most financial services companies are prohibiting their financial advisers from publishing LinkedIn recommendations “at least for the time being.”

Among the companies taking this approach is Ameriprise Financial Inc. The Minneapolis-based financial services firm bars employees who are registered with FINRA—mainly financial advisers—from accepting LinkedIn recommendations, says Ameriprise spokeswoman Stacy Housman.

“We expect the social media landscape to continue to evolve rather quickly and regularly review our policies to make sure they are still appropriate for the current environment and aligned with the SEC and FINRA’s guidance,” Housman says.

Companies in other industries also have limited LinkedIn references. Warner Bros. Entertainment Inc., for example, has a policy prohibiting employees from giving recommendations for current or former co-workers as a representative of the company. But social media guidelines at Warner Bros. allow workers to write LinkedIn recommendations as personal testimonials, says Todd Davis, executive director of worldwide recruitment at the firm, which is a division of New York-based Time Warner Inc.

If employees write a personal recommendation, Warner Bros. advises them to choose their words carefully. “We counsel people to use a great deal of deliberation,” Davis says.

In another sign that social networking practices are outpacing business policies, some organizations have yet to tackle the issue explicitly. Consider, for example, Singapore-based electronics manufacturer Flextronics International. Kristi Oetken, a Flextronics recruiter, has written several LinkedIn recommendations about current or former Flextronics co-workers, and she reads LinkedIn testimonials as she pursues job candidates. Flextronics instructs employees not to give references regarding co-workers or former co-workers over the phone. But Oetken says that the company has no policy about typing out such a peer review on LinkedIn. “At this point, it’s not disallowed,” she says. “It hasn’t been addressed.”

Although Flextronics does not have an official policy, some common-sense guidelines apply, says Tudor Coray, senior manager of national recruiting for a division that provides services to retailers. Employees should stress that the references are from the individual, not the company, and they should not disclose proprietary information, Coray says.

Coray has written LinkedIn recommendations for two former members of her Flextronics team who lost their jobs amid a restructuring last year. It’s common in these uncertain economic times, she says, for people to write unsolicited LinkedIn recommendations as a way to give laid-off colleagues a little boost. “They just want to help,” Coray says.

Besides wrestling with whether and how to restrict LinkedIn recommendations, employers also must determine how meaningful the recommendations are.

The testimonials can reveal a person’s ability to maintain an active professional network, Warner Bros.’ Davis says. On the other hand, he adds, a glowing LinkedIn recommendation does not replace a thorough professional reference check.

Oetken of Flextronics says the testimonials can offer insight into specific projects a job candidate worked on. Additionally, she says, clicking on the names of people providing the recommendations can lead to new prospects. “By following the links you can easily build a pool of individuals to reach out to,” Oetken says. “It is much like following bread crumbs.”

LinkedIn recommendations also can provide valuable intelligence to companies about their employees. Max Drucker, president and CEO of Social Intelligence Corp., which helps companies research candidates and employees on social media sites, says a flurry of new LinkedIn recommendations can signal that the worker is looking for a new job.

“When you see someone accumulating many recommendations quickly, it is often a sign or an indicator they are trying to increase their relevance and persona,” he says.

Workforce Management, February 2011, pgs. 21-22Subscribe Now!

Ed Frauenheim is a former Associate Editorial Director at Human Capital Media and currently works as Senior Director of Content at Great Place to Work. He is a co-author of A Great Place to Work For All.

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