Multi-level marketing (MLM) is a popular method of selling products. In this system, participants get paid for selling various products to other participants. These participants are then compensated for selling those same products to even more participants. Ultimately, the individual is not only responsible for his/her own performance – but also the performance of the other sales people they recruit.
At first glance, this type of structure may seem illegal because it resembles what is commonly referred to as a “pyramid scheme.” But multi-level marketing is a legal practice as long as it does not break the rules of Canada’s Competition Act. High-profile and profitable companies like Avon, Electrolux and Tupperware all use MLM methods legally and effectively.
Having said that, marketers can still find themselves unintentionally engaging in criminal conduct and breaking the rules.
So if you’re thinking about multi-level marketing as a way to boost your company or career, here is some legal advice that should be considered before getting involved.
1. Seek advice from the Competition Bureau
Before recruiting participants, submit a copy of your MLM plan to Canada’s competition bureau. Ask the bureau for a written review of your documents to see if you will be breaking any criminal codes. More information can be found at: . The RCMP’s website is also known to provide excellent guidance.
2. Review the concepts of pyramid selling
Pyramid selling is illegal in Canada so it is recommended that you familiarize yourself with the concepts of this scheme. Does your MLM plan require participants to pay money and/or entry costs to join your sales force? Is your product’s return policy considered fair? Does your MLM plan require participants to sell unreasonable or exorbitant amounts of product to other participants? Answer these questions honestly to help you determine if you are trapping yourself into a potential pyramid scheme.
3. Contact a lawyer who specializes in MLM
Getting in touch with a legal expert who is well-versed in MLM and direct sales is a great way to protect you from the tricky rules surrounding this field. An experienced lawyer can help you draft sales kits, look over distributor agreements and coach you on MLM policy and procedures.