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The PRO Act: Bad for Direct Selling

Use of the strict ‘ABC’ test for independent contractor status is still a point of contention in proposed U.S. legislation

By: Brian Bennett
Passage of the PRO Act by the full U.S. House of Representatives is the biggest shot across the bow to independent contractor status in recent history.
One of the core issues for the Direct Selling Association (DSA) and direct selling throughout our storied history has been protecting the independent contractor status of the salesforce. When legislation goes to undermine that relationship, it has the potential to throw into disarray our way of doing business. H.R. 842, the Protecting the Right to Organize (PRO) Act, would do just that.

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April 1, 2021 0 comment
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ComplianceLegalRisk Roundup

FTC Maintains Pressure on Compensation Plans

Direct sales companies should prepare for a new wave of regulatory actions

By:  Brent Kugler, Guest Contributor
Companies should take the time to consider if their plans hit the guardrails laid out by the most recent statements and actions of regulators.
Like it or not, the legal requirements for multi-level-marketing (MLM) compensation structures have changed in recent years. Many existing comp plans used by direct selling companies for years may now, if challenged, be considered non-compliant by the Federal Trade Commission (FTC). Indeed, comp plans considered to be compliant as recently as two years ago may today run afoul of the FTC’s latest criteria for evaluating compensation structures.

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March 1, 2021 0 comment
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FTC on the Defensive as Supreme Court Addresses Section 13(b)
ComplianceLegalRisk Roundup

FTC on the Defensive as Supreme Court Addresses Section 13(b)

Skeptical court probes FTC’s approach to seeking ill-gotten gains

By:  Larry Steinberg, Guest Contributor
If the FTC loses this case, the agency will no longer be able to rely on Section 13(b) to obtain an order requiring a wrongdoer to return all of the money it illegally obtained.
FTC Commissioner Rohit Chopra, who will leave the FTC  after the  Senate confirms him as the newly appointed director of the Consumer Financial Protection Bureau, is known as one of the more prolific commissioners. He has spoken and written extensively in his three years on the FTC including, notably, in a November 2020 paper wherein he called the AMG Capital Management v. Federal Trade Commission case an “existential threat to the agency’s ability to hold wrongdoers accountable.”  The previous month, in a letter to Congress, Commissioner Chopra, joined by the other four FTC commissioners, described Section 13(b) as the primary tool that the FTC uses to return money to consumer victims, and pleaded for Congress to amend the statute so that it would expressly provide for monetary relief.

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February 1, 2021 0 comment
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ComplianceLegalRisk Roundup

Shifting Direct Selling’s Reputation

Times present new opportunity to focus on customers

“We, as the direct selling community, are stepping up and should continue to be present compliantly with unbridled optimism.” ­—Meredith Berkich, chief growth officer, Jenkon
Reputation is everything, and in direct selling that is especially true. So when the COVID-19 pandemic spread across the globe, it not only spurred double—and in some cases, triple—digit year-over-year growth for the channel this year, it also provided an opening for reputation improvement that many have been looking for during the past decade.

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November 1, 2020 0 comment
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Venue Emerges as Major Factor in Neora Lawsuit
ComplianceLegalRisk Roundup

Venue Emerges as Major Factor in Neora Lawsuit

Litigation can be influenced by venue choice and have a significant impact on a case outcome

U.S. District Court Judge Freda L. Wolfson

By: David Rauf
Different venues can bring about an array of juror demographics, docket speeds or judicial precedents that can benefit one side.
The Federal Trade Commission’s (FTC) lawsuit alleging that Neora is an illegal pyramid scheme will be transferred to a Texas courthouse, a federal judge has decided. The ruling also accuses the direct selling firm of venue shopping to try and get the case moved to a friendlier jurisdiction.

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September 1, 2020 0 comment
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FTC Reveals True Goals in Research Paper
ComplianceLegalRisk Roundup

FTC Reveals True Goals in Research Paper

Regulators want to dismantle all multi-level marketing companies

By:  David Bland
The paper indicates that the FTC views all companies with a multi-level compensation plan structure as dangerous to the public, and it recommends removing the levels as the best course of action.
The FTC authors suggest three actions that could prevent the risk of pyramid operations. First, they state that an obvious option would be to end the recruitment aspect of the business.  Second, they suggest that changes to recruitment incentives could “reduce an operator's ability to induce or allow participation in a transfer scheme.” Third, they argue that if sellers were not required to make purchases in order to qualify for recruitment rewards, the company would no longer be able to convince the seller to accept retail losses in hopes of gaining back profits with future recruitment.
Until recently, any company in the direct selling channel with viable products and consumer demand for those products could consider themselves operating under Federal Trade Commission (FTC) favor. However, the agency appears to be changing its mind about practices it previously accepted, as indicated first by AdvoCare’s surprising abandonment of its multi-level compensation plan a year ago under FTC pressure.

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July 1, 2020 0 comment
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Leading Through the Current Chaos
ComplianceLegalRisk Roundup

Leading Through the Current Chaos

Six strategies to implement now to thrive tomorrow

By: Laurie Girardi, Customer Success and Industry Evangelist for MarGo
Direct sellers give up too soon because they assume people are not interested, when realistically they have not provided enough touches. 
Times are hard. We know that. Even if sales are doing well in this stay-at-home period, this is an unsettling time. And yet we also know direct selling will weather this storm, and even emerge better for it.

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June 1, 2020 0 comment
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Your Reputation Must Remain Top of Mind
ComplianceLegalRisk Roundup

Your Reputation Must Remain Top of Mind

Developing a communications plan before a crisis hits is key

By: Crayton Webb, CEO of Sunwest Communications
The problem is, if you’re only communicating after the crisis has occurred (or worse yet, coming up with a plan to communicate during the crisis), it’s too late.
Amidst the crisis of the current coronavirus outbreak, it is proving frighteningly easy, ironically, for direct sellers to become complacent. The backdrop of COVID-19 has become an all-consuming distraction. While some direct selling companies, like so many businesses, are forced to scale back and lay off employees, others are experiencing double-digit growth. Whether it’s because of an easily obtainable, high-quality product or the allure of the “ultimate work-from-home gig,” the success can become intoxicating. It’s as if those companies are saying, “We must be doing everything right. Let’s keep doing it.” On the flip side, though, the pain of financial trouble or cutbacks necessarily demand a “keep your head down” internal focus on operational costs and the bottom line.

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May 2, 2020 0 comment
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Coronavirus Product Claims Surge in the Field
ComplianceLegalRisk Roundup

Coronavirus Product Claims Surge in the Field

Even well-intentioned field members can post illegal claims

By Jonathan Gilliam, CEO of compliance firm Momentum Factor
“These warning letters are just the first step. We’re prepared to take enforcement actions against companies that continue to market this type of scam.” —Joe Simon, Chairman, FTC
Coronavirus. COVID-19. A global pandemic. Whatever you want to call it, news is coming in daily with updated numbers of cases and deaths related to the quickly spreading virus. Cities and countries all over the world are shutting down. It’s a scary time for us all and, as with other crises that arrived suddenly and without warning, we are looking for answers and solutions. 

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April 1, 2020 0 comment
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