When people ask me why I don't have a Facebook account, it's precisely because of moves like this by Facebook. I tired of their ever-changing privacy policies and their latest flip-flop is no better. The initial response to employer demands for the passwords of job applicants was good, but hours later it changed. The Facebook communications team then took over the discussion and went wobbly.
A decidedly more conciliatory approach was just sent to me by a Facebook spokesperson. They went from "initiating legal action" to a "engaging with policy makers and other stakeholders."
Here's the statement: "We don’t think employers should be asking prospective employees to provide their passwords because we don’t think it’s right the thing to do. While we do not have any immediate plans to take legal action against any specific employers, we look forward to engaging with policy makers and other stakeholders, to help better safeguard the privacy of our users."