In today's digital age, influencer marketing can be a game-changer for small businesses. But without the right legal knowledge, it can also lead to costly mistakes. Below are five common misconceptions that small businesses make when hiring influencers, along with real-world examples to drive the point home.

1. Misconception: Intellectual Property is Automatically Yours
Tip: Always establish clear ownership of content through contracts. It’s easy to assume that if you paid for it, you own it, but that's not always the case.

Many businesses assume that if they pay an influencer to create content, they automatically own it, but this is not always true unless explicitly stated in a contract. To avoid legal disputes, it's essential to have a clear agreement specifying who holds the intellectual property rights. Without this, the influencer may retain ownership, limiting how your business can use, modify, or repurpose the content. To protect your business, include a “work-for-hire” clause or a detailed licensing agreement that defines the scope of use, ownership, and modification rights. This ensures that you have the legal authority to use the content across multiple platforms or campaigns, and it prevents potential conflicts down the road if the influencer decides to restrict or reclaim rights to their work. A well-drafted contract clarifies expectations and ownership, safeguarding your investment and brand assets.

A great example is when Snapchat faced an intellectual property dispute with influencer Luka Sabbat. Sabbat allegedly failed to meet contract terms when Snapchat hired him to promote their Spectacles product. Snapchat argued that he failed to create the agreed-upon content, leading to a lawsuit over who owned the content rights and deliverables. Always ensure ownership of content is outlined clearly in contracts to avoid such legal entanglements.
Source: The Ringer

2. Misconception: A Handshake is as Good as a Contract
Tip: Verbal agreements and casual relationships don’t hold up when something goes wrong.

Influencers are often creators and businesspeople, and they may have multiple partnerships going on. Relying on verbal agreements or informal arrangements with influencers can lead to significant problems if things don’t go as planned. Influencers often juggle multiple partnerships, and without a formal written contract, there’s a high risk of misunderstandings about deliverables, timelines, or payment terms. Verbal agreements are difficult to enforce legally, leaving your business vulnerable if an influencer fails to fulfill their obligations or delivers subpar content. A detailed written contract not only sets clear expectations but also provides legal protection, ensuring that both parties understand their responsibilities, the agreed-upon compensation, and the ownership of the content. By formalizing the relationship through a contract, businesses can avoid confusion and safeguard their investment in influencer marketing campaigns.

A prime example is the infamous Fyre Festival. The festival organizers hired multiple influencers, including Kendall Jenner, to promote the event, but many deals were based on informal agreements. When the festival turned into a complete disaster, legal battles ensued over who was responsible, especially since influencers had been paid without clear contracts outlining deliverables, disclaimers, and liabilities. Jenner herself later settled a lawsuit for $90,000 over her role in promoting the fraudulent event. This case shows how essential formal, written agreements are, especially for small businesses, where budget and time are tighter.
Source: Business Insider

3. Misconception: Influencers Are Employees
Tip: Influencers should be treated as independent contractors to avoid employment complications.

Treating influencers as independent contractors rather than employees is crucial to avoid legal and financial complications. Influencers typically work on a project-by-project basis, offering creative services to multiple clients, which aligns more with independent contractor status. Misclassifying them as employees can lead to issues such as liability for benefits, taxes, and compliance with labor laws, which can become costly for businesses. To avoid this, clearly outline in the contract that the influencer is an independent contractor, specifying that they control how and when they create the content. This distinction helps your business avoid employment-related liabilities, while also allowing influencers the creative freedom they expect. Proper classification and documentation ensure legal clarity and protect your business from potential lawsuits or penalties from labor authorities.

Misclassification can lead to financial penalties. For example, Uber learned this the hard way with their drivers, but the same principles apply to influencers. If you control when and how an influencer posts, rather than allowing them creative freedom, you might cross into employee territory. This can lead to back taxes, penalties, and legal trouble for businesses that misclassify their workforce.
Source: The Seattle Times

4. Misconception: Disclosure is Optional
Tip: Influencers must disclose sponsored content per FTC guidelines, and brands are equally responsible for ensuring this happens.

Failure to disclose sponsored content is a common mistake that can lead to serious legal and reputational risks for both influencers and brands. The FTC requires influencers to clearly state when their content is sponsored or when they have a material connection to the products or services they promote. Ignoring these guidelines can result in fines, lawsuits, and damaged trust with consumers. Brands are equally responsible for ensuring that influencers comply with these rules, so it’s vital to include explicit disclosure requirements in contracts. Brands should also monitor influencer posts to ensure proper disclosures are made, using clear language like "sponsored by" or "#ad." By being proactive in ensuring compliance with FTC guidelines, businesses protect themselves from potential penalties and maintain transparency with their audience, preserving trust and credibility.

A high-profile case involved Floyd Mayweather and Logan Paul promoting cryptocurrency without proper disclosure. They were paid to endorse EthereumMax, but neither disclosed their financial ties to the project, leading to a class-action lawsuit. This resulted in legal actions from the SEC (Securities and Exchange Commission) and settlements, with Mayweather and others having to pay fines for misleading promotions. This incident underscores how both influencers and brands are held accountable for transparency, and failure to comply with disclosure rules can lead to hefty fines and reputational damage.
Source: New York Times

5. Misconception: All Exposure is Good Exposure
Tip: Aligning with the wrong influencer can hurt your brand.

Not all exposure is beneficial, and partnering with the wrong influencer can seriously damage your brand’s reputation. While influencers can offer access to large and engaged audiences, it's essential that their values, behavior, and image align with your brand’s message and goals. A mismatch in values or a poorly chosen influencer—particularly one embroiled in controversy or unethical practices—can lead to backlash, tarnishing your brand’s image and alienating your customer base. Thoroughly vet potential influencers by reviewing their past content, public persona, and audience engagement to ensure they positively represent your brand. By carefully selecting influencers who genuinely align with your business, you can foster authentic connections with your target audience and protect your brand from the negative fallout of bad partnerships.

Take Pepsi’s disastrous partnership with Kendall Jenner as a prime example. In 2017, Pepsi launched a commercial featuring Jenner, attempting to address social justice movements. The ad was widely criticized for being tone-deaf, trivializing the seriousness of social justice issues, and ended up being pulled within 24 hours. The backlash damaged both Jenner’s and Pepsi’s reputations, proving that not all exposure is good exposure. It’s critical for small businesses to thoroughly vet influencers and ensure their values align with the brand’s image.
Source: New York Times

These real-life examples show how easily things can go wrong if you don’t have the right legal protections in place. Whether you’re a small business or a large corporation, influencer marketing needs to be handled with care, and proper contracts, ownership agreements, and legal compliance are non-negotiable. By having these elements in place, small businesses can avoid potential legal pitfalls and thrive in the fast-growing world of influencer marketing.

Need help navigating the legal side of influencer marketing? Contact us at SideHustle.Law to ensure your business is protected from the start.

Pablo Segarra, Esq.