The COVID-19 pandemic has led to significant fundraising and program cancellations and delays, but it has also created new opportunities for charities to partner with companies to address critical and urgent needs in the community. Perlman & Perlman’s Karen Wu and Tracy Boak highlight key legal issues facing charities and their corporate partners looking to collaborate on fundraising efforts to support COVID-19 relief programs.
Download Slide DeckAdditional Q&A Not Covered In The Webinar Recording:
The information provided in this Q&A does not constitute legal advice, and is not intended to substitute for legal counsel.
Q: Can you address any exposure/risk to the charity if a partner does not abide by CCV State filing requirements?
A: As a general matter, the state charity solicitation laws require a charity to “establish and maintain control over” fundraising activities conducted on their behalf. That said, in my experience, the state regulators generally look to the CCV for its own noncompliance issues. I still recommend that once a charity knows of the noncompliance it should pursue compliance ASAP. Depending upon how egregious the noncompliance is, a state could look to the charity if that charity was aware of the noncompliance but chose to ignore it.
Q: A “round up” of purchase or adding a $1 at check out these do not trigger CCV because they are not tied to the purchase of a specific product and is a customer choice?
A: Yes. The donation is being made by the purchaser, rather than by the commercial entity. A key distinction is who is making the donation? If it is the commercial entity by donating part of the “proceeds” then it is a CCV. If it is the purchaser adding his/her own money to the transaction, then it is not a CCV transaction.
Q: With regard to the Better Business Bureau (BBB) Wise Giving Alliance seal, whose obligation is it to ensure compliance? We try to enforce the requirements on our corporate partners, and include the disclosure requirements in our agreements, but advertising materials are often released without our knowledge or approval.
A: BBB approval refers to meeting the BBB Wise Giving Alliance’s 20 Standards for Charity Accountability, and is specifically available to nationally fundraising charities. Many charities find this approval (and licensing of the BBB seal) to be a valuable tool to communicate to donors that it operates with high standards of integrity and transparency. BBB evaluation is voluntary – if a charity chooses to be evaluated against the BBB standards, the results of the review will be made public on the https://www.give.org/ website. In order to meet Standard #19, which relates to cause marketing advertising disclosures, the charity needs to monitor for compliance by its partners. If the Wise Giving Alliance determines that a promotion does not meet the Standard #19 transparency requirement, it will not approve the charity as meeting all 20 standards for charity accountability. The status “Standards Not Met” will be displayed on the charity’s page on https://www.give.org, along with a specific list of which of the Standards were not met, and the organization will not be able to license the BBB seal to use in its solicitation materials.
As part of the BBB review process, the charity must submit sample cause marketing advertising disclosures as well as copies of any written guidelines used by the organization’s staff to oversee compliance with Standard #19. In addition to including the disclosure requirements in the contract, which is an important step to formally establish clear expectations, charities should also ensure that they have a contractual right to approve all uses of its trademarks in connection with the promotion before the advertisements are released publicly, and diligently follow up with the corporate partner to obtain draft advertising materials to review. If pre-approval of campaign materials is a contractual requirement, the company’s failure to do so would constitute a breach of contract. Charities should remind their partners of this contractual obligation. Creating internal written procedures for staff to follow, which includes a step for reviewing the advertising disclosures for Standard #19 compliance is another important step to reduce noncompliance.
If a corporate partner has published non-compliant advertising materials, notwithstanding contractual disclosure and pre-approval requirements, charities can still show the BBB that it made good faith efforts to comply with Standard #19, including through the standard contract provisions as well as other internal operating procedures.
In addition to BBB approval, the advertising disclosure requirements are also part of various state laws governing commercial co-venturers, and the New York Attorney General’s Best Practices for Transparent Cause Marketing. As such, these requirements should be followed even if a charity is not seeking BBB approval. A summary of the specific state laws applicable to CCV advertisements is included in this article.
Q: What if a registration or contract filing is late? Who is responsible for paying that fine?
A: As a general matter, CCV promotions should not begin until all required registrations, including the contract filing, have been completed. We appreciate that with regard to disaster-related promotions, strict compliance may not be possible. In those instances, we recommend filing as quickly as possible and providing an explanation for the delay. In the event a state imposes a late fee, it would be imposed against the party responsible for the applicable filing.
If your organization has a campaign report filing deadline, and is having trouble obtaining the other party’s countersignature on a campaign report, you can submit the form to the state without the other party’s signature, and explain that your organization has made diligent efforts to timely obtain the countersignature, but has been unable to do so. This may reduce the possibility that the state will impose fines or penalties. Under the current COVID-19 remote work situation, an email trail showing that the other party approves the contents of the form may also be sufficient documentation, and the state may permit the documents to be submitted by email.
Q: We often have minimum guarantees in our contracts. On occasion, a promotion does not generate enough sales to meet the minimum guaranteed donation, based on the terms of the promotion, and the company refuses to pay the minimum guarantee, despite having used our charity’s name to co-brand their product. Do we have any recourse?
A: If a minimum guarantee is a contractual obligation, and has been advertised, the company is required to pay that amount, regardless of sales. Failure to make such payment is both a breach of contract, as well as a potential deceptive advertising and deceptive solicitation regulatory concern. The organization may want to work with its legal counsel to address the issue with the company in light of these concerns.
Q: I’ve heard that if a cause marketing program is conducted for less than 30 days, the company may not need to register as a CCV, is that true? What if a company runs a 1-day or 1-weekend program?
A: There is no exemption from the state commercial co-venturer registration requirements for short-term promotions. Companies are required to register if they meet the definition of a commercial co-venturer, and are conducting the promotion in a state that has a commercial co-venturer registration or filing obligation. The key consideration is “where” a CCV promotion is taking place, not “how long” it is being conducted for. A more detailed list of the state registration and filing requirements applicable to commercial co-venturers and charities that are beneficiaries of charitable sales promotions is available here (see Company FAQ#1 and Charity FAQ#1).
If a cause marketing campaign is very brief, or perhaps is only expected to generate a relatively small amount of donations for a charity, companies can consider alternative campaign activations that do not constitute CCVs, and therefore do not require state CCV registration and reporting. Given that only seven states have CCV registration and/or reporting requirements, companies can also consider excluding the states with significant registration and reporting burdens from the promotion.
Q: If a company is only promoting a CCV through its owned channels, does that fall under Step 1 of the Charleston Principles?
A: A company’s owned marketing channels could include retail websites, blogs, mobile apps, email, or social media. Sales/marketing via the company’s own website would fall under Step 1 of the Charleston Principles (i.e., the state in which the entity is domiciled). Here is what the Charleston Principles says specifically about emails: “An entity that solicits via e-mail into a particular state shall be treated the same as one that solicits via telephone or direct mail, if the soliciting party knew or reasonably should have known that the recipient was a resident of or was physically located in that state.” Social media and email marketing strategies can involve geo-targeting, which is a way to target users by their location, including countries, states, and zip codes, so consider whether the company’s marketing strategy involves targeting of potential customers by state. Some companies conducting charitable sales promotions target users on social media based on other characteristics, such as age or gender, but not based on their location – this type of social media strategy would not, by itself, trigger registration. A more complete explanation of the online fundraising compliance jurisdictional assessment for CCVs is available here (see Company FAQ#2).
Q: Are charitable sales promotion advertisements required to disclose promotion dates if the promotion is just ongoing?
A: Promotion dates only need to be disclosed if there is, in fact, a cutoff date after which the product will continue to be sold, but without triggering a donation. In many cases, charitable sales promotions are disclosed on product packaging, hangtags, or store signage that may remain visible to customers past the promotion cutoff date, after which donations will no longer be made to the charity. This disclosure ensures that customers are made aware that their purchase of the product past the specified promotion end date will no longer trigger a donation. If no promotion end date is disclosed, then each sale of the applicable product should continue to trigger a donation until all units are sold out.
