Risk Roundup
Navigating deal-making risks in the direct selling channel amid evolving regulatory standards
By: Troy Keller, Michael Lindsay and Anthony Badaracco
Mergers and acquisitions is an important growth strategy in many industries, and the direct selling space is no different. Companies in this sector tend to embrace a variety of deal types. The higher-profile deals may involve a major player in the industry acquiring a peer company.
These types of transactions can be transformative, but they also tend to be big bets for the acquirer. Another important approach involves moving upstream by acquiring manufacturing capabilities and even agricultural production.
Is your Website a Potential Liability?
April 2023 Issue – By William M. Miller
In this digitally dependent world, the first contact many consumers have with a company is through its website. As a result, more than ever, it is essential to have a website that complies with both United States and foreign laws, not only to safeguard potential and existing customers but also to avoid costly lawsuits that may result from non-compliance.
With a few exceptions, it is well established that any retail website doing business in the United States must be accessible to individuals with disabilities (particularly those that also do business through brick-and-mortar stores). As a practical matter, what this means is that the website must be coded to allow it to interface with screen reading software that enables a person that is blind or has low vision to access the website.
Burbach is Co-Chair of Foley and Lardner’s State Attorneys General and FTC Consumer Practices
SSN: What triggered the lawsuit?
EB: Connecticut-based Truth in Advertising (TINA) is a self-proclaimed tax exempt “consumer advocacy group,” which also sometimes refers to itself as “journalists.” TINA consists of merely seven people. TINA is funded by Hyatt Hotel heiress Karen Pritzker. In 2016 TINA learned that Neora (at that time known as Nerium) had won an award from the Direct Selling Association (DSA) so it decided to “investigate” Neora.
TINA had no consumer complaints about Neora (at that time known as Nerium). Nevertheless, TINA submitted its own complaint about Neora’s advertising to the FTC. TINA proclaimed that Neora and its Brand Partners were violating the FTC Act by making income and product claims.
Direct selling perspectives on Health Canada’s cost recovery plan
By: Peter Maddox and Lewis Retik
The September issue of SSN (“Canada’s Cost Recovery Proposal Sparks Unease from Natural Health Product Marketers”) discussed Health Canada’s cost-recovery proposal for natural health products (NHPs) and its plan to recoup costs for product approvals and site licensing.
If unchanged, it would place the onus on the companies that market, manufacture, or import products to cover the regulator’s costs and at a quantum that Health Canada itself indicates is significantly more than what is spent today.
By: Noah Westerlund
Over the past 18 months, federal lawmakers have intensified pressure on the Federal Communications Commission (FCC) to do something about the ever-growing issue of unsolicited marketing texts. Given those pressures, the FCC and Federal Trade Commission (FTC) have increased their efforts to regulate carriers’ texting practices.
This regulatory push has significant implications for network marketing companies and their distributors. Essentially the FCC and FTC decided to broaden the net cast by the Telephone Consumer Protection Act of 1991 (TCPA Act) and the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act). The TCPA Act regulates telemarketing, including SMS messages and phone calls, while the CAN-SPAM Act covers email marketing.
Ask these 3 questions about accessibility, consumer privacy and auto renewal requirements
By: William M. Miller
Ensuring that a website is accessible is particularly important as compliance, or lack thereof, is frequently the subject of litigation.
In this digitally dependent world, the first contact that many consumers have with a company is through its website. As a result, more than ever, it is essential to have a website that complies with both United States and foreign laws, not only to safeguard potential and existing customers but also to avoid costly lawsuits that may result from non-compliance. Below are three questions every company should ask about its website.
Well-written agreements will benefit both the company and the consultant
By: Brent Kugler, Guest Contributor
Because many companies favor keeping transfer upon death policies in their consultant agreements, it is critical that these policies are drafted in a manner to not conflict with other key provisions in the agreement.
As important as it is to ensure that the transfer upon death provision does not conflict with or negate language in the consultant agreement, it is just as important for companies to avoid mistakes when facilitating the transfer of the business to the heir or beneficiary.
Many—some would even say a majority—of direct selling companies have provisions in their consultant agreements that allow a sales consultant to pass their business to an heir or
beneficiary upon their death. It’s a great marketing tool. How many jobs, professions, or business opportunities allow a worker to pass their hard work and success on to their children or heirs?
By: Robert G. Kreklewetz, Guest Contributor
Canada is often viewed as a natural extension of the American direct selling ecosystem: It has a common dominant language, similar culture, convenient land border and a market of over 38 million people.
While having many similarities, there are still unique legal and regulatory features that prove to be risk areas for direct selling businesses operating in Canada. But all of this can be easily avoided with the right planning, structuring or advice, including an appropriate “Canadianization” of Plan Documents and overall business strategies.
Below, is a review of five recent Canadian developments that direct selling companies operating (or thinking about operating) in Canada should consider knowing about.
Countering the risk of misclassification with proactive planning
By: Larry Steinberg and William Miller, Guest Contributors
In early 2021, a client of the Buchalter law firm received a notice from California’s Employment Development Department (EDD) that the EDD was conducting an audit to determine whether the client’s independent distributors were properly classified as independent contractors, instead of employees.
Though, over the years, the firm has handled scores of such audits on behalf of its clients, this was the first time the firm handled an audit which targeted a client that used a multilevel-marketing model. What also contributed to the unusual nature of this particular notice is that this client is based outside of the State of California.
While the client has no employees in California, and only a handful of non-distributor independent contractors, it does have thousands of independent distributors based in California.
The ostensible purpose of the EDD audit was to determine whether the client was properly paying all of its state payroll taxes, but the company and its counsel immediately understood that if the EDD decided the company’s distributors were misclassified employees, such a finding could have broad-ranging implications—including the possibility of a flurry of tagalong litigation, such as class actions and representative claims under California’s Private Attorney General Act
(PAGA) statute.