Navigating the FTC’s 2024 Guidance in a post-Chevron landscape
By John Sanders and Katrina Eash, guest contributors
The Federal Trade Commission (FTC) has faced several recent setbacks. Last year, in Neora, a federal court rejected the FTC’s arguments that Neora was operating an illegal pyramid scheme and was making deceptive income and product claims. Then, in August 2024, a federal court in Ryan enjoined nationwide the FTC rule that would ban worker non-competes.
Despite these setbacks, in April 2024, the FTC issued new business guidance concerning direct selling companies. Nonetheless, on June 28, 2024, the U.S. Supreme Court in Loper Bright overturned Chevron, reversing four decades of courts’ deference to the interpretation of ambiguous statutes by federal agencies.
Loper Bright—a landmark June 2024 U.S. Supreme Court opinion that overruled Chevron deference, which had directed courts to defer to federal agencies’ interpretations of ambiguous statutes—is another nail in the coffin for the FTC. That said, much uncertainty exists about both how aggressively the FTC will seek to enforce its new guidance and how lower courts will apply the standard articulated in Loper Bright.
Still, in a post-Chevron legal landscape in which courts are not directed to automatically adhere to agencies’ interpretations of ambiguous statutes, direct selling companies likely face less risk of an FTC enforcement action merely because they chose to ignore some of the FTC’s newfound guidance, especially FTC guidance untethered from longstanding FTC practice or from established legal precedents.
Nonetheless, it is recommended that direct selling companies seek legal counsel to evaluate what new guidance the FTC will likely be successful in enforcing and the risk inherent in not complying with the FTC’s new guidance.
Four decades ago, the U.S. Supreme Court in Chevron addressed how courts should view federal agencies’ interpretations of statutes. In Chevron, the Court developed a two-pronged test: First, courts should assess whether Congress spoke directly on the question at issue through an unambiguous statute.
If so, then courts must give effect to congressional intent by applying that unambiguous statute. But if Congress has not spoken directly on an issue (typically because a statute does not address that issue or because a statute is ambiguous as to an issue), then, under Chevron, courts must defer to an agency’s interpretation of that statute so long as an agency’s interpretation is a “permissible construction of the statute.”
Behind Chevron was the idea that statutory ambiguities should be resolved by agency officials with “special expertise” in a specific subject area. Courts’ deference to the interpretation of statutes by federal agencies came to be known as the “Chevron doctrine.” Chevron has had an enormous impact on administrative law: It has been cited by thousands of courts and has given federal agencies the latitude (and muscle) to shape law.
The FTC’s Changing Stance: Key Points from the 2024 Guidance
In April 2024, the FTC released its “Business Guidance Concerning Multi-Level Marketing” (2024 Guidance), which contains updated guidance regarding the direct sales marketing channel.
Much of the 2024 Guidance outlines areas the FTC will consider in evaluating whether direct sellers are pyramid schemes or have engaged in deceptive practices under Section 5 of the FTC Act. 15 U.S.C. § 45.
Some of the FTC’s guidelines are novel, while others retrench or even retract earlier positions previously taken by the FTC. Here are just a few principles emphasized in the 2024 Guidelines:
- Safe harbors for retail sales: For years, courts (and the FTC itself) have stated that an MLM is not a pyramid scheme when a seller’s compensation plan is connected with retail sales. Now, the FTC states that “[t]here is no safe harbor under the FTC Act for such a compensation plan.” —2024 Guidance.
- Purchases made by participants: Courts have often considered purchases made by participants to be legitimate retail sales to “ultimate users.” The FTC confirmed as such in its 2018 Guidance, stating that: “Product that is purchased and consumed by participants to satisfy their own genuine product demand
. . . is not in itself indicative of a problematic MLM compensation structure.” — FTC’s 2018 “Business Guidance Concerning Multi-Level Marketing.” - In a turn of events, the FTC’s 2024 Guidance now rejects its previous position, explaining that it will instead look to, among other things, whether purchases made by participants satisfy personal or retail demand and whether companies encourage participants to purchase products for reasons other than “true retail demand.”
- That said, in Neora, the court rejected the FTC’s argument that purchases by participants are not sales to end users, so the 2024 Guidance goes against recent case law.
- Representations about “modest” or “supplemental” earnings: Despite suggesting for years that direct sellers should represent that participants can only expect to make modest or supplemental income, now the 2024 Guidance explains that companies should avoid making claims about even modest or supplemental income.
These are merely a couple of examples. It is strongly recommended that you contact counsel for a full analysis of the 2024 Guidance and how it differs from earlier FTC guidance and legal precedent.
There can be no doubt that direct sellers can, and should, comply with the FTC’s 2024 Guidance to the extent it is consistent with existing legal precedent and/or legitimate and accepted interpretation of the FTC Act.
That said, as shown above, much of the 2024 Guidance ignores legal precedent and diverges from the FTC’s prior interpretations of the FTC Act. In those instances, the question remains: What is the risk of my company refusing to comply with the FTC’s interpretation of the FTC Act when that interpretation has no basis in the law and is otherwise unsupported?
The End of Chevron Deference: Implications for Direct Sellers
The Supreme Court helped to answer that question with its June 2024 Loper Bright decision. After four decades of dominance, the Chevron doctrine died with Loper Bright. In Loper Bright, the Court explicitly overruled Chevron and held that courts need no longer blindly and blithely defer to federal agencies’ interpretations of ambiguous statutes.
The Court reasoned that agencies have no special ability to interpret ambiguous statutes. Instead, courts do. Thus, courts should exercise their own judgment in interpreting ambiguous statutory provisions. Loper Bright represents a sea change in how courts view administrative law.
Still, much is uncertain about the standard of review adopted in Loper Bright. Lower courts will likely need to flesh out its contours over years—or even decades. How courts apply Loper Bright will have a significant impact on the risk direct selling companies face in not adopting the FTC’s new guidance.
To start, Loper Bright leaves untouched agency interpretations where Congress has unambiguously delegated to a federal agency authority to issue such interpretations. So, courts will need to evaluate this more carefully post-. In addition, Loper Bright holds that courts should give “due respect” to agency interpretations when those interpretations are longstanding and well-reasoned.
But what is a longstanding and well-reasoned interpretation? Loper Bright also holds that when an agency’s interpretation relies on findings of fact within the special purview of that agency, then that agency’s interpretation may be informative. But what counts as a finding of fact within an agency’s special expertise?
Assessing Compliance Risk: Balancing FTC Guidance and Legal Precedent
For direct selling companies assessing whether to adopt positions the FTC takes in the 2024 Guidance, the uncertainties inherent in Loper Bright are directly in play and must be carefully considered.
For example, the FTC’s new pronouncements that direct sellers should avoid claims about even “modest” or “supplemental” income is far from “longstanding”—indeed, the FTC routinely suggested such language to direct sellers for many years prior to the 2024 Guidance.
Accordingly, the 2024 Guidance likely carries little weight under Loper Bright, and a direct selling company likely faces little risk if it fails to adopt the new guidance.
Put simply, while the legal landscape appears more favorable to direct selling companies under Loper Bright, a post-Chevron world raises many new uncertainties for direct selling companies.
Those uncertainties necessitate an individualized assessment of each position taken by the FTC in the 2024 Guidance (such as those demonstrated above) to evaluate the extent to which your company is (or is not) at risk for failure to comply with a position taken in the Guidance. It’s recommended that you work with legal counsel in performing such assessments.
John Sanders and Katrina Eash are Partners at Winston & Strawn.
