The FTC and the Direct Selling industry are clearly of the same opinion of the basic goal that the direct selling industry should prosper through effective and ethical practices. However, FTC Chairwoman Edith Ramirez emphasized new legal standards that would abandon a 40-year old gold standard, the Amway Safeguards Rule, and that would also upend and call into question decades of industry accepted business practices.

Briefly, the Chairwoman argued for:

1. Abandonment of reliance on the Amway Safeguards Rule as a key test for legitimacy.
2. Effectively creating a new legal standard patterned after those requested by the FTC in the FTC/Herbalife settlement that, in reality, may upend decades of industry accepted practices and rewrite 40 years of court legal standards.
3. The existing Court standard derives from:

(1)  Koscot … Compensation to upline should be based on sales to the ultimate user.

(2)  Amway … A program that enforces the Amway Safeguards of a retailing mandate to qualify for MLM commissions, a 70% rule that prohibits ordering unless product is sold or used and a reasonable buyback policy for inventory for terminating distributors, if effectively enforced and in conjunction with avoidance of inventory loading, is indicative of legitimacy. (Also, Amway did not challenge recognition of distributor personal use purchases as legitimate sales to the “ultimate user”.)

(3)  BurnLounge … The primary motivation for distributor purchases should be the purchase of product in reasonable amounts for resale or use as opposed to mere qualification in the program for rewards. A pyramid analysis will be “fact driven.”

1. On the FTC wish list for a new paradigm for legitimacy is:

(1)  Abandonment of the reliance on the Amway standard.

(2)  Redefining Koscot to require compensation to upline to be based on sales to the nonparticipant retail customer rather than the ultimate user.

(3)  Adopting the FTC/Herbalife settlement “punch list” of mandates in lieu of the factual analysis of “primary motivation,” called for in BurnLounge, including:

(a)    Only one-third of MLM compensation to upline should come from personal use by downline distributors, whether or not such purchases are reasonable in quantity for use by the distributor “ultimate user.”

(b)    Autoship to distributors should be prohibited.

(c)    Monthly activity volume requirements may not include any purchases by distributors.

(d)    Tracking of performance activity connected to wholesale purchasing should be banned.

Leading MLM industry expert Jeff Babener takes a closer look at what this means for the direct selling and multilevel marketing industry. Read the full article: Fact Checking the FTC’s New Legal Guidance

Visit us at www.mlmlegal.com to learn more.

Companies that claim to be partners with their consultants should walk the talk.

There are two issues that have surfaced in recent years: 1) social networking and 2) frequent migration of distributors between companies. With social networking concerns, companies have had to decide on positive protocol for consultants who socialize through technology and the internet. In terms of the migration of consultants, companies have often found themselves constantly revisiting policy that both protect the livelihood of all its distributors while also protecting the interest of the company. These issues are constantly under review. Most companies continue to revisit these issues multiple times.

Certainly, it’s not a good idea to make frequent changes to a compensation plan because it undermines faith in the company. Companies should also try and limit the number of changes in basic agreements and also be able to justify any of the changes being made. Companies that claim to be partners with their consultants should walk the talk. They should be saying that their interests lie in protecting distributors and consumers, not just the company. They have a responsibility to protect the livelihoods of thousands, or millions, of consultants who depend on income from the company. This is important because when companies disassemble, consultants who have spent all of their time building sales organizations only to find them stolen or taken elsewhere, are deeply hurt.

In the direct selling industry, the word change can send a certain group of people into orbit. Companies that are making adjustments or enhancements to their policies and procedures or compensation plan must carefully communicate those changes to sellers, especially to the leadership of the company. Leaders need to be prepared to deliver messages and to have the messages palatable to the rest of the sales force.

For more information on the network marketing industry visit www.mlmlegal.com and www.mlmattorney.com.

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