From JDSupra, Toby Blyth, Robyn Chatwood, Paul O’Halloran, and Nicolas Cousins discuss the uses of influencers to promote a business and some of the special considerations if the influencers are independent contractors. Toby, Robyn, Paul, and Nicolas write:
The use of social media “influencers” as a marketing tool, namely brand endorsements by individuals with a strong following on Instagram, TikTok and other social media platforms, has emerged as a popular marketing strategy for many businesses. The use of influencers allows brands to reach targeted segments of the market as well as explore new segments without the need to commit to a fully-fledged marketing campaign. In Australia, influencer marketing is estimated to account for $560 million of the $13.9 billion digital advertising market and since 2019 the global influencer advertising market has more than doubled and is now estimated to be worth $16.4 billion.1
As more businesses consider engaging influencers, we consider below some key legal issues businesses need to know in relation to Australia’s influencer market.
1. Nature of the relationship
Businesses must be cognisant of the nature of the relationship they establish with an influencer and ensure the commercial agreement between the business and influencer outlines the intended nature of the relationship. Whilst many influencers provide their services through an incorporated company, and may be properly treated as independent contractors, the situation with a sole trader or individual may not be so clear. Regular use of an influencer outside of an incorporated structure may give rise to allegations that the influencer is a casual or part-time employee of the hiring business, which may have a number of implications, including for underpayment of wages and other modern award conditions.
In 2022, the High Court of Australia delivered two decisions redefining the legal distinction between employees and independent contractors. In Construction, Forestry, Maritime, Mining And Energy Union & Anor v Personnel Contracting Pty Ltd  HCA 1 and ZG Operations & Anor V Jamsek & Ors  HCA 2, the High Court held that where parties have comprehensively committed the terms of their relationship to a detailed written contract which is not challenged, then the relationship as described in the written contract will prevail. Careful attention to the true nature of the relationship in the terms of the commercial agreement with the influencer are important for businesses to avoid risk in this area.
2. Scope of work
Businesses should ensure the scope of work to be performed by the influencer is clearly particularised from the outset. This can include the number and type of posts to be posted on social media during a relevant time frame (e.g. stories, static, or video posts and there may be requirements to post during product launches or ‘drops’), the platforms they are to be posted on (e.g. Instagram, TikTok etc.) and whether the business intends to engage the influencer exclusively, which is generally not the case given most influencers work across a number of brands. Any commercial terms should also include brand guidelines, such as the businesses approach for conveying to the influencer how the brand should be referred to (e.g. communication of post captions, hashtags and scripts) and limits on what can be included in social media posts as well as requirements to comply with applicable laws and the social media platform requirements (such as disclosure requirements or restrictions on specific postings).
An influencer agreement is a form of intellectual property licence – and necessary provisions include those that establish close control by the brand over how copyright and trade marks are used and the scope of the licence. The agreement needs to be clear as to who is responsible for creating the content and who owns the intellectual property rights to it.
The commercial agreement must outline agreed fees and payment terms. Influencers can be paid in a number of ways, including a fee per post/click or lead generated, a lump sum (such as a fee to be an ambassador), a commission-based arrangement (such as a percentage calculated by reference to product sales), or a combination of those. Sometimes payment is for specific services provided (such as event appearances, creation of digital marketing assets etc).
By way of example, in order to gauge the commission earned by an influencer a business may direct an influencer to include a unique Urchin Tracking Module (“UTM”)2 link, discount code or hashtag link in their social media posts in order to match website traffic and sales deriving from use of that link. There are however a variety of ways to arrive at a deal structure – and most businesses take into consideration the size of the influencer’s following and the key performance indicators measuring engagement as well as the other variables such as sector, niche, exclusivity, use rights and duration of the engagement. Many platforms facilitate the use of link stickers and provide verification tools to measure effectiveness. Some platforms pay bonuses based on revenues from ads – a factor that the commercial agreement between the influencer and the brand need to take into account when considering the deal structure.
When determining a suitable fee structure to monetise the influencer relationship it is important for businesses to take care to ensure the fee structure does not mimic traditional employment related remuneration that may give the overall impression of an employer/employee relationship. Other factors to take into account include conflicts of interest and confidentiality (whether the influencer, for example, is permitted to represent a competitor brand at the same time, whether the influencer can monetise the relationship outside the parameters of the contract such as by way of making profits from selling merchandise or other supplementary benefits or sources of income that could be leveraged by the influencer from the relationship that may accrue as a consequence of the underlying relationship between the influencer and the brand).
At the outset, the parties to the commercial arrangement need to establish who generates the reporting metrics and how these will be managed.
Influencers are often engaged by a number of businesses at once, so it is important that if a business wishes to engage an influencer exclusively, this is clearly negotiated and outlined in the commercial agreement. Pushing an influencer to work exclusively for a single business may be a hard task to negotiate. Therefore, businesses may try to negotiate restrictions on the influencer’s engagement in certain industries or sectors, or limit the influencer’s ability to endorse competitors or enter into arrangements that may not be competitive but rather inconsistent with brand values. For example, an ethical investment company seeking to engage an influencer may take issue with the influencer representing specific companies, industries or practices of other companies even when the other company is not competing with the first brand.
5. Regulatory requirements
To avoid the risk of falling foul of laws regulating the marketing material of influencers, businesses should ensure commercial agreements clearly expound the influencer’s obligations to comply with Australia’s consumer laws and published best practice guidance. The laws most relevant to influencer engagements are outlined in Australia’s Competition and Consumer Act 2010 (Cth), and include (albeit are not limited to), the prohibition against misleading and deceptive conduct (section 18), and the prohibition against making false or misleading representations regarding goods and/or services (section 29). The Australian Association of National Advertisers has published a voluntary marketing code of ethics (‘Code’) to assist businesses and influencers in avoiding allegations of prohibited conduct and ensuring “marketing communications are legal, honest and truthful”. In accordance with the requirement under the Code that advertising must be clearly distinguishable, a commercial agreement with an influencer should outline an influencer’s obligation to disclose their relevant posts as advertising material, including through use of hashtags #sponsored or #ad (being the accepted minimum standard of disclosure of an influencer’s brand association and in line with the approaches adopted in the UK and US).
As influencer marketing continues to grow, so has the focus of regulators in this industry. The Australian Competition and Consumer Commission (‘ACCC’) recently announced that advertising by influencers will be the focus on its next major interim report as part of their five-year Digital Platform Services Inquiry. The ACCC will consider consumer issues deriving from the way businesses use social media advertising services such as display advertising, sponsored posts and paid influencers. Examples of such misleading and deceptive conduct include instances where influencers make false statements when promoting products, omit key information or fail to clearly label posts as sponsored or paid for. A notable example of international enforcement was in October 2022, when the US Securities and Exchange Commission (‘SEC’) fined Kim Kardashian US$1.26 million for not clearly disclosing she was paid US$250,000 to promote a cryptocurrency (see here).
Other specific regulatory requirements may exist – depending on the product/service of the brand or sector. By way of example, Australia’s therapeutic goods regulatory regime (which is overseen by the Therapeutic Goods Administration) has specific guidance on the use of testimonials and endorsements which will be relevant to sponsors who intend to engage influencers to market therapeutic goods.3 Advertisements for therapeutic goods must not contain a testimonial from anyone who has received ‘valuable consideration’ for making the testimonial or for marketing the goods – which includes social media influencers, bloggers and brand ambassadors.
Another example is the Australian Securities and Investments Commission (‘ASIC‘) who has also published an information sheet to guide “finfluencers” (financial social media influencers) which is aimed at protecting investors and promoting market integrity in the financial services sector. ASIC has stated publicly that it monitors select online financial discussion by influencers who feature or promote financial products for any misleading or deceptive representations or unlicensed financial services.4
An aspect of an agreement might be the need to require the influencer to delete user-generated comments which are misleading, negative, disparaging or otherwise inappropriate.
6. Intellectual property rights
Businesses should be aware that generally, an influencer, if the person who creates the content (as an independent contractor), will own the intellectual property rights to the content, unless contractual arrangements expressly assign those ownership rights in writing to the business engaging them. Therefore, it is important for a business to consider its ongoing needs – how it plans to use the content created by the influencer initially and into the future, whether, for example, it plans on posting influencer created content on its own social media platforms, and whether it wishes to have the right to reuse the content after the agreement with the influencer has ended. Further, as commercial relationships develop, there is often a “cake” problem – while the brand and the influencer may own the ingredients, the resulting cake may generate its own value, and so a contractual framework as to who owns the cake (and not just the ingredients) should be considered. The scope of the ownership rights and licences involved needs to be carefully drafted. There needs to be clarity as to the deliverables, how performance is to be measured, and permitted use of content (particularly if there are any limitations or obligations such as any requirement for the Influencer to disclose the commercial arrangement when they post the content on their own social media accounts).
An aspect that needs to be considered upfront relates to who has approval rights over the creative content. It may be necessary to include moral rights consents in relation to use of the content.
Confidentiality provisions are usually needed and deal with items such as keeping confidential insight analytics, influencer and brand strategies and brand style guidelines and policies.
The Australian Taxation Office is continuing to look closely at income generated by influencers, including any gifts the influencer might receive in return for brand promotion. Both businesses and influencers may need to obtain specific taxation advice before entering these commercial agreements.
8. Termination clauses and effect of termination
Like with any commercial arrangement it is important for businesses to consider their ability to terminate agreements with influencers. Generally commercial agreements of this nature will include termination rights for convenience, however, if not, it is important for businesses to protect themselves by ensuring agreements include a swift exit strategy if the arrangement does not work out due to poor performance, breach of non-disparagement clauses in the agreement or negative brand attention which may be brought on by an influencer of the brand. The importance of such termination rights was illustrated in 2021, when a number of companies, including JSHealth Vitamins and Hairhouse Australia, were able to terminate their commercial agreements with an Australian influencer after a video of the influencer snorting what appeared to be an illicit substance went viral.
It is also vital to turn your attention to the consequences of the agreement terminating or expiring – such as any requirements for the influencer to archive or delete materials/content or return or retain them or surviving non-disparagement clauses.
9. Seek legal advice
Influencer marketing can be a valuable tool for brands looking to expand and reach new segments of the market. However, ensuring that the commercial agreement comprehensively covers all aspects of the arrangement, and protects the business, is crucial to ensuring that the term and aftermath of an influencer engagement runs smoothly and is lawful and beneficial for all involved.
- Statista, ‘Influencer marketing market size worldwide from 2016 to 2022’, Global influencer market size 2022 | Statista.
- Some code added to the end of the uniform resource locator (“URL”) to help track where website traffic comes from if users click the link to it.
- See testimonials and endorsements in advertising and section 24 of the Therapeutic Goods Advertising Code 2021.
- See Information Sheet 269 Discussing financial products and services online (INFO 269)
Source: What you need to know if your business uses influencers to promote its brand | Dentons – JDSupra