Direct Selling, Network Marketing, and Multilevel Marketing Disputes

Certain companies utilize a direct selling retail channel, whereby sales are made directly to the end-use consumer by independent contractors that are sometimes called distributors or associates. Because of the direct-to-consumer nature of direct sales, the customers are often known to the distributors, which is why direct selling is sometimes referred to as network marketing. Companies that use a direct selling channel typically use a multi-level compensation model that has different levels of distributor compensation depending on where a sale occurs in that distributor’s marketing organization, sometimes referred to as the distributor’s “downline” or “genealogy.” Hence, these companies are sometimes referred to as multilevel or multi-level marketing (“MLM”) or “direct sales” (“DS”) companies.

As articulated by the Direct Selling Association (“DSA”), “Direct selling is a retail channel used by top global brands and smaller, entrepreneurial companies to market products and services to consumers. Companies market all types of goods and services, including jewelry, cookware, nutritionals, cosmetics, housewares, energy and insurance, and much more.” Among the most well known direct selling organizations are Amway, Herbalife, and Mary Kay Cosmetics. Utah has been and is home to a number of well-known direct selling companies, such as Nu Skin, USANA, XANGO, Mona Vie, Natures Sunshine, and DoTerra.

The trial lawyers at Magleby Cataxinos & Greenwood have significant experience handling complex disputes between direct selling companies and between the high-level distributors and their companies. The firm’s direct selling clients have included DSA members and “diamond” or equivalent distributors. The firm has presented testimony from the DSA in a dispute between a distributor and company.

The types of disputes that are common in the direct selling industry typically involve competition, non-competition agreements, the interpretation of “distributor agreements,” and disputes over the interpretation or application of compensation or “comp” plans or systems. A common competition dispute involves one direct selling company cross-recruiting, or “poaching,” the distributors of a competing direct selling company. A common compensation dispute involves a high-level distributor claiming underpayment by the direct selling company. Either type of dispute can be complicated, high-stakes, and time-critical. The firm recognizes and responds to those realities.