SECTION 6: Network Marketing and the Law
By Jeffrey A. Babener
Excerpted from Network Marketing: What You Should
Know, Jeffrey Babener, Legaline Publications
MLM consultant practice tips. Many MLM
companies choose to provide MLM Replicated websites for MLM distributors. In addition to providing camera ready copy for MLM media advertising,
MLM replicated websites provide consistency in the MLM Opportunity message
and prevent erroneous or inappropriate claims about product, service,
earnings and the MLM Marketing and MLM Compensation Plan. MLM
Legal and MLMLegal.com and Babener and Associates provides expert
MLM Consultant and MLM Consulting advise on MLM corporate, MLM software,
MLM Compensation, MLM Taxes, etc. MLM Consulting is an important component
for MLM startup. Careful Choice of MLM Software is another component
of MLM Corporate. An MLM Consultant and MLM Law and MLM Legal
is part of the MLM Startup Team. MLM Compensation must be reviewed
by an MLM Consulting standpoint by an MLM Consultant and MLM Legal and
MLM Law professional and programmed by a MLM Software and MLM Technology
Avoid "Earnings Hype."
Probably the first question that is asked by an individual who is being recruited for a network marketing business opportunity is: How much can I make? The truthfulness of the answer is indicative of the quality of the opportunity.
First keep in mind that network marketing is only a second job for most people, so huge earnings for the average participant should not be expected. Only 10% of distributors are full time, and 90% are part time. This is not to say that big potentials are not possible in this business. The stories of distributors earning $20,000, $30,000, and $40,000 a month in network marketing are not uncommon, and they are true. There is no cap on possible income, because those incomes are the result of hard work, talent and good fortune. But they are not the everyday case. A more realistic goal is $300 to $500 a month. Network marketing is no different than other endeavors. After all, how many youngsters who roam the basketball courts of America end up in the starting lineup of an NBA team.
What should be told about earnings possibilities? What can legally be told? Where can prospective distributors get useful information? Since marketing companies are not required to file earnings information with any governmental agencies, and since most state and federal laws severely restrict earnings projections in company materials, the best source is one on one discussions with other distributors. They should be asked how long they have been in the business, what they earn, and what they had to do to accomplish their earnings.
Prospective distributors shouldn't be mad at companies if they say very little on earnings. They will be in trouble under a myriad of laws if they do. The rules are clearly more restrictive for what companies can and cannot say in this area. For instance, many states have adopted MLM legislation to specifically prohibit companies from making any earnings projections based on hypothetical possibilities. Companies are also prohibited in such states from presenting past earnings of distributors. The presentation on how the compensation plan works, however, is perfectly acceptable everywhere. A frequent practice of allowing potential distributors to fill in the blanks as to their own projections does not appear to be as objectionable as well.
Major MLM states have developed their own approaches on this subject. For instance, the State of California has pursued a number of companies with respect to earnings representations. The State of California particularly objects to any inflated earnings representations and finds the so-called "check waiving" deceptive and misleading. Representing to potential distributors that it will be easy to find other distributors for the MLM program is not approved. Of particular interest in states such as California are earnings testimonials of distributors which present the flagging of checks showing gross earnings, when in fact the net earnings of the distributor should reasonably take into account many other costs or costs of purchase of inventory, rebates or commissions paid by the distributor to others, etc. If the distributor's gross earnings check shows $20,000, but the "real" net earnings is $10,000, the state has a problem with the $20,000 claim.
In other major MLM states, such as Texas, "pie in the sky" earnings claims have also been referred to by the attorney general's office as "airborne pastry." As with many states, you will find little guidance in the statute books. Understanding the lay of the land must come from experience. As with California and some other leading states, Texas prohibits earnings projections by companies, but allows more leeway when it comes to distributor testimonials. When giving an earnings testimonial is such states, a distributor should give relevant information that places his or her earnings testimonial in a proper perspective - for instance, the distributor should indicate how long he or she has been in the program, what specific geographic area they have had success in building their organization and earnings, and a "fair" representation of what their actual earnings history has been.
Perhaps the state which has been most active in this area is the state of Wisconsin, which actually took Amway to task on this particular point. It is the position of the Wisconsin Attorney General that the use of income representations, which do not accurately portray the income experience of persons who have participated in the given business opportunity program, or do not indicate the percentage of persons who actually achieve that level, are violations of Wisconsin's trade practices law. The Wisconsin Attorney General demands that income representations, which reflect the actual earnings of participants must also be accompanied by affirmative disclosures which place such representation in context. For instance, the Attorney General indicates there should be a disclosure of the time frame on which the representation is based and an indication of the percentage of persons who actually achieve that level of income. The Wisconsin Attorney General obtained a consent judgment against Amway Corporation requiring payment of a fine as well a permanent injunction which required the firm to disclose actual sales, income or profit experiences of active distributors in conjunction with use of hypothetical income examples. For example, where hypothetical example used a potential of gross income, the judgment required Amway to disclose that only five out of every 1,000 distributors actually achieved the performances illustrated. Amway was further required to disclose the percentage of its active distributors versus distributors which have become inactive.
Finally, the FTC has vigorously enforced restrictions on earnings claims. From the FTC's standpoint, it is a "deceptive trade practice" to make any earnings representation unless a simultaneous disclosure is offered which outlines the percentages of distributors who achieve various levels of earnings as well as the averages earnings of distributors.
DIRECT SALES consultant practice tips.
DIRECT SALES Legal and MLMLegal.com and Babener and Associates provides
expert DIRECT SALES Consultant and DIRECT SALES Consulting advise on
DIRECT SALES corporate, DIRECT SALES software, DIRECT SALES Compensation,
DIRECT SALES Taxes, etc. DIRECT SALES Consulting is an important component
for DIRECT SALES startup. Careful Choice of DIRECT SALES Software
is another component of DIRECT SALES Corporate. An DIRECT SALES
Consultant and DIRECT SALES Law and DIRECT SALES Legal is part of the
DIRECT SALES Startup Team. DIRECT SALES Compensation must be reviewed
by an DIRECT SALES Consulting standpoint by an DIRECT SALES Consultant
and DIRECT SALES Legal and DIRECT SALES Law professional and programmed
by a DIRECT SALES Software and DIRECT SALES Technology provider.