WINNING THE GIG GAME:
How Digital Transformation Helps Direct Selling Companies Lead the Gig Economy By George Elfond, Co-Founder and CEO of Rallyware
D
irect selling companies operating in the United States face a constantly evolving legal and regulatory landscape. Business practices and methods that were once viewed as acceptable or compliant may now invite significant legal or regulatory risk to a company and its stakeholders. Companies should, therefore, regularly evaluate their business practices to ensure that their risk profile has not increased due to business activities that are now deemed noncompliant or illegal.
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The FTC has unequivocally stated that it intends to hold MLM companies responsible for improper earning claims made by their distributors.
Commit to Policing Improper Earnings Claims Improper earnings claims are typically what will put a company on the radar of the Federal Trade Commission. Recently, the FTC launched a new rulemaking initiative to address deceptive earnings claims. Companies that do not have issues with improper earnings claims are much less likely to attract FTC scrutiny. Therefore, ensuring that your company is not publishing improper earnings claims is a logical place to start. In its complaint filed against AdvoCare, the FTC listed numerous examples of improper earnings claims made at AdvoCaresponsored events and on company-created social media posts and webinars. Companies should ensure that their marketing personnel are properly trained on what is and is not a permissible earnings claim.
Disclosure Statement was that it only reported earnings data for active distributors. Advocare defined active distributors as participants who earned income in the previous year. The FTC alleged that AdvoCare’s IDS was deceptive because less than 30 percent of all AdvoCare distributors earned income. By only disclosing the earnings data for active distributors on its IDS, the FTC alleged that the IDS was misleading because it failed to include earnings data for more than 70 percent of AdvoCare distributors. Done properly, the IDS can be an important insurance policy for MLM companies. A full and transparent disclosure of all participant earnings will significantly reduce a company’s exposure to regulatory scrutiny. On the other hand, an incomplete or misleading IDS can provide evidence the FTC relies on in concluding that a company has made deceptive earnings representations in violation of Section 5 of the FTC Act.
Just as importantly, companies must publish accurate data reflecting the earnings of all program participants. An income claim is considered deceptive if information is not disclosed showing what potential participants can typically expect to earn. A company’s Income Disclosure Statement (IDS) is a critical document. The FTC’s issue with AdvoCare’s Income
The biggest challenge a company faces in reducing exposure for improper earnings claims is in policing claims made by members of its sales force. The FTC has unequivocally stated that it intends to hold MLM companies responsible for improper earnings claims made by their distributors. Companies must do much more than simply have policies in place that prohibit
Spring 2022
