When a raiding situation arises, the parties should look to the legal framework to ascertain their respective rights and obligations. If God had been running an MLM rather than delivering the Jews from Egypt, the first of the Ten Commandments given to Moses would have been “thou shalt not steal thy neighbors downline.” Following closely on the heels of this commandment would be “thou shalt not covet thy neighbor’s downline,” and “thou shalt not commingle downlines.”
If there is one problem that every MLM faces at one time or another, it is the raiding of the company’s distributor force for another MLM by one of its own current or recently departed distributors.
NULL In fact, a company should consider itself lucky if it only faces the issue once a year. In my practice I have found that improper distributor solicitation is the number one conflict between distributors and the company. And talk about an emotionally charged issue —if you want a sure-fire way to turn your best lifelong friends into mortal enemies, try raiding their downline just once. Your ex-friends will be sure to spit every time they mention your name, assuming of course that they continue to utter your name. It is far more likely that your last name will forever be preceded by “that dirty son of a $%@*,” or some other equally endearing four-letter first name. The Competing Interests Yes, emotions run high, and everyone involved has a reason for taking their respective positions. The distributor who is recruiting for another company believes that free competition entitles him or her to recruit whomever he wants, whenever he wants, and for whatever company he wants. He is going to exercise that right since the company is keeping too much of the pie and putting unreasonable limitations on him. On the other hand, the upline of the distributors who are being solicited have labored long and hard to develop their downline, and will not let go without a fierce battle. They scream for company action to protect the fruits of their labor. Yet a third perspective is displayed by the company that is having its distributor force recruited away. The company finds it hard to believe that a distributor whom it has paid so well and given so much would have the audacity to turn on them.
Throw into this mix several slanderous and ill-tempered remarks by all parties, a healthy dose of hearsay, an occasional threat of physical violence, and you have a recipe for a frothy lawsuit.
As between MLM companies and their distributor forces, raiding problems have been addressed through provisions in distributor agreements and policies and procedures that place restrictions on their distributors’ ability to solicit or recruit for other MLMs. The restrictions vary in degree from a prohibition against using distributor lists as recruiting aides to absolute prohibitions against participation in any other MLM. In addition, common law causes of action exist which offer companies means of protecting their sales force from unfair competition. Distributors who have had enforcement action taken against them have responded with lawsuits claiming the policies are unenforceable based on restraint of trade theories. They further argue that they are independent contractors, and that the company does not have the right to burden them with non-competition agreements. Raiding, however, is not always driven by distributors. Occasionally, the industry sees management from one company encouraging its distributors to target the distributors of another company. MLM companies that are members of the Direct Selling Association (DSA) have attempted to address this issue through the DSA’s proselytizing guideline.(1) So who is right?
May a company lawfully restrict its distributors from recruiting fellow distributors for other companies? Can a company completely restrict its distributors from participating in another MLM? Are distributors free to participate in other programs and recruit whomever they wish, whenever they wish?
There are certainly legal actions that can be taken by all parties involved to protect their rights. However, having handled many raiding claims, I have found several approaches that do not involve the legal process can adequately resolve many of the cases with the least amount of disturbance and expense. These approaches should first be considered before engaging in a legal battle. Non-Adversarial Approaches to Address Raiding Problems 1. Clean House No matter how hard a company strives for perfection, it is simply unrealistic to believe one MLM will please everyone all the time. An occasional disgruntled distributor will always be a fact of MLM life, and a raiding situation will undoubtedly arise. These situations can be dealt with through the approaches discussed below. However, if a company suffers from a chronic raiding problem, it must reflect inwardly to determine if the problem is of its own making. The company must honestly answer some basic, soul-searching questions:
- Are my products or services of inferior quality?
- Are my prices too high?
- Is order entry and shipping prompt?
- Is the customer service department courteous and helpful?
- Is the compensation plan competitive with others in the industry?
- Are my qualifiers too burdensome?
- Have legal problems caused the company’s reputation to deteriorate?
There are many questions of this nature that management must address. The fundamental issue, however, boils down to whether the company is keeping its distributors and customers happy. MLM is a fiercely competitive industry, and there is no shortage of good companies selling high quality products and offering generous compensation plans. If a company is not competitive in these areas, its distributors and customers will go elsewhere.
Thus, if a company has a high attrition rate and faces more than its fair share of raiding problems, the first step it should take is to identify and correct its own shortcomings rather than try to pin the problem on rogue distributors.
Corporate management must also analyze their attitude toward distributors. I have seen companies develop the cavalier attitude of “We are the company, so we can do as we damn well please—and anyone who doesn’t like it is welcome to leave!” Any company that has this attitude is simply leaving the barn door wide open for a stampede of exiting distributors. Corporate management must remember that with all of the new MLMs that have arisen in the last 10 years, distributors have many options. The successful companies understand that they need the distributors more than the distributors need them. Accordingly, they make customer and distributor satisfaction their foremost priority. Distributors must perform a similar self-evaluation. The key inquiry each distributor must ask is “why do I want to change companies?” If a distributor is jumping between companies with the intent of making a quick buck and moving on (the “MLM Junkie” approach), he should consider the consequences of treating his downline as personal property.
Remember that a downline is made up of real people, all of whom have individual emotions, goals, aspirations and dreams. It is not a piece of industrial machinery that can be used, moved around, and replaced when worn out.
Playing manipulative games with a downline will eviscerate the dreams of many people and cause emotional reactions ranging from exasperation to raw hostility. In addition, those who trust a distributor enough to follow him or her to a new program with a new promise may find themselves bewildered and betrayed when the distributor abandons that new promise and moves on to the next program. Ultimately, if a distributor is driven by self-interest and acts without regard to the carnage that will follow in h
is wake, he must recognize that he is wearing a sign that says “I’m self-centered and arrogant – please sue me.” 2. Identify the True Scope of the Problem and Act Accordingly A common raiding scenario involves a distributor (John Doe) who has recently resigned or been terminated from Company A, and then joins company B. Mr. Doe will attempt to solicit his former downline to company B as quickly as possible. This results in a flurry of telephone calls by Mr. Doe to select members of his previous downline.
- The FTC’s Proposed Business Opportunity Rule by Spencer Reese - July 1, 2006
- The FTC’s Proposed Business Opportunity Rule by Spencer Reese - July 1, 2006
- Get your hands off my downline!!! by Spencer Reese - February 1, 2006