Direct selling channel monitors potential adjustments in regulatory focus under new leadership
By David Bland
“Think traditional concepts of ‘deception’ and ‘unfairness’ under the FTC Act and fewer, if any, attempts by the FTC to creatively plead cases in a way that stretches the original meaning of statutory authority.” – Donnelly McDowell, Partner, Kelley Drye & Warren
In a significant shift for federal trade regulation, Andrew Ferguson, a seasoned legal advisor with strong ties to the previous Trump administration, has been appointed as the new chairman of the Federal Trade Commission (FTC). This appointment, coupled with the FTC’s transition to a Republican majority, signals potential changes in regulatory priorities that could affect the direct selling channel. While the new administration may bring a more business-friendly approach, industry leaders stress the importance of maintaining compliance with existing guidance on income and product claims.
A Business-Friendly Shift at the FTC
Andrew Ferguson’s appointment aligns with the Trump administration’s focus on reducing regulatory burdens for businesses. Ferguson’s leadership is anticipated to influence the FTC’s approach to enforcement, prioritizing policies that support entrepreneurial activity. Legal experts predict fewer attempts to stretch statutory authority.
As Donnelly McDowell, a partner at Kelley Drye & Warren LLP, explains: “Think traditional concepts of ‘deception’ and ‘unfairness’ under the FTC Act and fewer, if any, attempts by the FTC to creatively plead cases in a way that stretches the original meaning of statutory authority. We know from their dissents in recent actions that both Ferguson and [Melissa] Holyoak are skeptical of the FTC’s attempted use of its Penalty Offense Authority, as well as far-reaching Mag-Moss rules to create broad civil penalty authority.”
Danny Lee, president and CEO of 4Life and chairman of the Direct Selling Association (DSA), shares his perspective on the appointment: “Under the incoming Trump administration, the Federal Trade Commission will likely see shifts in regulatory priorities that could positively impact the direct selling industry. If confirmed as FTC chairman, Andrew Ferguson is expected to steer the Commission towards a more business-friendly approach, which will benefit the thousands of solo entrepreneurs who generate income from the marketing and selling of leading products and services.”
He continues, “However, while Ferguson may reduce regulatory pressures, direct selling companies are committed to maintaining consumer trust and self-regulation, and remain vigilant in their compliance efforts.”
Implications for the Direct Selling Channel
Under the current Democratic administration, led by FTC Chair Lina Khan, the agency has taken an aggressive stance on regulating the direct selling industry, with a focus on curbing deceptive practices and unsubstantiated claims. Recent lawsuits, such as those against Neora LLC and doTerra distributors, underscore the FTC’s resolve to enforce compliance.
McDowell further notes: “At the same time, we expect the Division of Marketing Practices to stay busy – as both sides of the aisle have traditionally agreed on certain types of enforcement, including but not limited to against the direct selling industry. Notably, Ferguson and Holyoak both concurred in bringing recent actions against gig economy companies for allegedly deceptive earnings claims (although they dissented from the Penalty Offense Authority counts).”
The Independent Contractor Debate
The classification of independent contractors is another area where the Republican-led FTC could make significant changes. The Biden administration had emphasized policies aimed at reclassifying independent contractors as employees, a move that raised concerns within the direct selling channel. Distributors in this sector typically operate as independent contractors, a model that provides flexibility but has been subject to scrutiny.
Legal analysts suggest that the new FTC leadership may take a different stance on this issue. By focusing on policies that support the independent contractor model, Ferguson’s FTC could alleviate some of the uncertainty faced by direct selling companies. However, experts caution that this potential shift does not eliminate the need for companies to maintain robust compliance frameworks and transparency in their operations.
Direct sellers also face the challenge of balancing contractor independence with the need for company oversight. Industry stakeholders have pointed out that clearer guidelines from the FTC could help businesses navigate this complex issue while protecting the interests of both companies and independent contractors.
The Non-Compete Ban and Its Implications
The proposed FTC rule banning non-compete clauses has also drawn attention from the direct selling sector. Non-compete agreements are commonly used to protect proprietary information and salesforce structures, but their future remains uncertain under this proposed rule.
While the Republican-led FTC may reconsider or amend the non-compete ban, companies are encouraged to proactively assess their contractual practices. Exploring alternative methods to safeguard sensitive information and retain salesforce members could help mitigate potential disruptions if the rule is implemented. This proactive approach aligns with broader industry efforts to adapt to evolving regulatory landscapes.
The debate over non-compete clauses also highlights broader concerns about workforce mobility and competition. Critics of non-compete agreements argue that they can stifle innovation and limit opportunities for workers. As the FTC navigates these complex issues, businesses will need to remain flexible and forward-thinking in their strategic planning.
The Business Opportunity Rule: Potential Changes
Another area of interest is the FTC’s ongoing consideration of revisions to the Business Opportunity Rule. This rule, which requires businesses offering certain income-generating opportunities to provide detailed disclosures to prospective participants, could see significant changes under the new administration.
The previous FTC had explored expanding the scope of the rule to include additional categories, such as e-commerce, business coaching, and investment programs. These proposed expansions aimed to enhance consumer protection by increasing transparency and preventing deceptive practices. However, with the Republican majority, the future of these changes is uncertain. Historically, Republican-led administrations have prioritized reducing regulatory burdens, which could slow or alter the trajectory of these expansions.
Industry stakeholders are advised to monitor developments closely, as any changes to the Business Opportunity Rule could require significant adjustments to compliance strategies. Balancing consumer protection with a business-friendly regulatory environment will likely remain a key challenge for the FTC.
Additionally, the potential expansion of the Business Opportunity Rule could disproportionately affect smaller businesses and entrepreneurs who may find the additional disclosure requirements burdensome. Advocacy groups such as the DSA have suggested that any updates to the rule should consider the unique challenges faced by small enterprises.
Striking a Balance Between Opportunity and Compliance
Direct sellers will face a complex environment as they navigate changes brought about by a Republican-majority FTC. Companies must balance the opportunities presented by anticipated regulatory shifts with the need to maintain compliance with established standards.
Outgoing FTC Chair Lina Khan reflected on the agency’s mission during her tenure, emphasizing the importance of continuity in its core objectives. “The work of promoting fair competition and protecting consumers is never complete; it requires constant adaptation to new market realities,” she stated during a recent discussion at The Brookings Institution.
Khan also expressed hope that the new administration would prioritize consumer protection, noting, “It’s crucial that the Commission remains steadfast in its mission to prevent deceptive practices and ensure market integrity.”
Current FTC Membership and Leadership
The FTC consists of five commissioners, each serving staggered seven-year terms. The current members include:
- Andrew Ferguson, chair whose leadership reflects the new Republican majority.
- Melissa Holyoak, a Republican, whose term expires on Sept. 25, 2025, plays a key role in advancing the Commission’s antitrust initiatives.
- Rebecca Kelly Slaughter, a Democrat serving until Sept. 25, 2029, is known for her advocacy on consumer protection.
- Alvaro Bedoya, another Democratic commissioner, whose term expires on Sept. 25, 2026, specializes in data privacy and technology-related issues.
- Mark Meador, pending Senate confirmation, is an attorney expected to fill the final seat and solidify the Republican majority.
This composition highlights a diverse array of priorities and perspectives that will influence the FTC’s direction in the coming years.
Navigating a Changing Landscape
As the direct selling industry adapts to changes in FTC leadership, proactive engagement with regulatory bodies remains essential. Companies can benefit from investing in compliance training, fostering transparent communication with distributors, and aligning their practices with both current and anticipated regulatory expectations.
While the appointment of Andrew Ferguson may signal a shift toward a more business-friendly regulatory environment, the core principles of consumer protection and ethical conduct will likely continue to shape the FTC’s priorities. By staying informed and adaptable, the direct selling industry can navigate these changes effectively while continuing to grow and innovate.
