Securities Law & Corporate Counsel Blog

As of January 1, 2013, rule AB 1844went into effect in California, effectively banning California employers from asking job seekers and workers for their usernames and passwords on social networking accounts.  In addition to this, AB 1844 also bans employers from discharging or disciplining employees who refuse to divulge such information under the terms of the bill. However, this restriction does not apply to passwords or other information used to access employer-issued electronic devices.California was among six states to pass laws that have made it illegal for companies to request social networking passwords or nonpublic online account information from their employees or job applicants.  Illinois, Michigan, Maryland, Delaware and New Jersey also have similar laws. Congress wasn't able to pass their proposed Password Protection Act of 2012, prompting these and other states to consider such statutes.This new law in California, as well as those passed or being considered in other states, will potentially make compliance that much more difficult for Registered Investment Advisers (“RIAs”).  On January 4th, 2012, the SEC issued guidance on an RIA’s use of social media in a new National Examination Risk Alert, Investment Adviser Use of Social Media(the “Alert”).  The Alert gave a list of factors for RIAs to consider in developing an effective compliance oversight program with respect to the use of social media. One such factor was to include sampling, or search methodologies, to monitor content and communications by employees.  Under the new law, employers will only be able to monitor that information which is “public” and can be seen without the use of a password, potentially hamstringing an employer’s ability to discover improper postings by employees.In light of this change, firms should be sure to update their compliance oversight program to accommodate the new rule.  Furthermore, compliance personnel should continue to educate all employees on the firm’s compliance requirements regarding postings related to the firm on social media sites, as non compliance could lead to sanctions by the SEC and other regulatory bodies.For further information on this, or other related topics, please contact us at [email protected] or (619)298-2880.