Advertising Law Alerts

August 4th, 2015

Into the Fire: Wal-Mart Opts Out of NAD Review - and Is Referred to the FTC

The National Advertising Division ("NAD") - a widely respected alternative dispute forum for advertisers - recently referred Wal-Mart Stores, Inc. ("Wal-Mart")'s "Raise in Pay" campaign to the Federal Trade Commission ("FTC")  after Wal-Mart declined to participate in NAD's process. It's unusual for leading advertisers to opt out of the NAD process. And we can't say how the FTC will handle the inquiry. But Wal-Mart's challenge shines a light on a critical, behind-the-scenes issue: NAD's willingness to initiate cases involving campaigns like Wal-Mart's that tout internal company initiatives rather than advertise products or services. Here's what you need to know.

Background.

The NAD, which is administered by the Advertising Self-Regulatory Council, provides a voluntary alternative dispute regulation process for advertisers. In addition, NAD has the authority to bring cases on its own initiative, called "self-monitoring" cases. NAD decisions on challenged advertisements are not binding, but most companies participate in the process and comply with the NAD's recommendations in part because NAD has the authority to refer matters to the FTC if the company opts out. Unlike NAD, FTC can impose monetary penalties, and its decisions and orders have the force of law.

The Wal-Mart "Raise in Pay" Ads.

As part of its routine monitoring program, NAD reviewed a broadcast ad from Wal-Mart that highlighted the company's recent initiatives to increase spending on higher pay, education and training for Wal-Mart employees. The commercial featured emotional vignettes of Wal-Mart employees and their families in their everyday lives, and included the following voiceover statements:

"It's hard to build a future if you can't see past today ... That's why Wal-Mart is investing in the most important part of our company, our people."

"a raise in pay ... raises us all," over a shot of check-out lane 15. NAD interpreted this as a reference to the $15-per-hour minimum wage goal of many wage activists.

Finally, the commercial closes with an onscreen end card that reads: "We are investing over $1 billion this year in higher wages, education and training."

The NAD Inquiry.

In its initial inquiry to Wal-Mart, NAD expressed concerns about whether the television spot implied that Walmart was actually raising employees' pay to $15/hour; and whether this "living wage" would enable employees to support themselves and their families and allow them to "build a future." The NAD requested substantiation for these implied claims and sought to do a more in-depth review of the claims in the ad. In response to NAD, Wal-Mart (1) declined to participate in NAD's review on the ground that NAD lacked jurisdiction; (2) disagreed that the commercial implied any claims that required substantiation; and (3) noted that any review of the claims would require technical analyses beyond NAD's expertise. Wal-Mart also maintained that an NAD proceeding was not the appropriate forum to evaluate communications related to its commitment to its associates or the larger policy debate implicated by the alleged implied claims. In other words, Wal-Mart was relying on the fact that here, its communications were not about the company's products or services, but about internal company initiatives.

The NAD Decision.

The NAD disagreed in a strongly worded opinion asserting jurisdiction over the Wal-Mart campaign's implied claims. Because Wal-Mart opted out of the review, NAD referred the matter to the FTC.

The Take-away.

The failure of Wal-Mart's jurisdictional argument is significant for all advertisers. Specifically, NAD noted in its decision that an advertisement designed to inform consumers about Wal-Mart's values as a company and to encourage potential customers to patronize Wal-Mart stores "is clearly a commercial message within the definition of 'national advertising.'" As such, the  decision evokes  the California Supreme Court's decision in Nike vs Kasky, which found that Nike's statements - press releases, letters to newspaper editors, and letters to university officers defending its labor practices - constituted commercial speech for purposes of truth in advertising laws. With this decision, NAD has therefore demonstrated a willingness to take an expansive view of its own jurisdiction. How FTC will respond to the referral remains to be seen.

For more information on the NAD's self-regulatory process or other advertising compliance questions, please contact Terri Seligman at (212) 826 5580 or tseligman@fkks.com, Jeffrey A. Greenbaum at (212) 826 5525 or jgreenbaum@fkks.com, Rayna S. Lopyan at (212) 705 4842 or rlopyan@fkks.com, or any other member of the Frankfurt Kurnit Advertising Group