What is direct selling?
Direct Selling is a business model used to market products or services directly to consumers. The direct selling industry offers a variety of goods and services, including foods/food supplements, cosmetics, cookware and much more. These products or services are commonly marketed by independent contractors (often referred to as “distributors”, “consultants” or “representatives”) on a person-to-person basis to the end consumer. Typically, these independent contractors use social media and/or their own or a company-replicated website to sell or promote products and services.
Direct selling encompasses a variety of distribution methods, including multi-level marketing (also referred to as “MLM” or “network marketing”). In general, multi-level marketing involves a compensation structure according to which independent contractors are not only compensated for their own product sales, but also for the sales generated by their downline (which are other salespeople whom they recruit into the business, including the recruits’ recruits).
What are the legal ramifications?
There is no harmonized single set of European legislation which governs direct selling and/or multi-level marketing. There are rather various European and national laws that need to be complied with.
European laws of particular practical importance are the Consumer Rights Directive 2011/83/EC (stipulating off-premises contracts) and the Unfair Commercial Practices Directive 2005/29/EC (dealing with misleading and aggressive commercial practices, including blacklisted practices such as the operation of a ‘pyramid promotional scheme’).
On a national level, direct selling companies will have to comply with particular laws governing direct selling, such as the Trading Schemes Regulations 1997 in the UK, the Incaricati Regime in Italy (“Incaricato alle Vendite a Domicilio” as provided by Italian Law no. 173/2005) or the VDI System in France (“Le Vendeur à Domicile Indépendant” as set out in articles 135 ‑1, L 135–2, and L 135–3 of the French Commercial Code).
Be compliant with LUCID.
Based on our many years of practical experience as European in-house counsel in the direct selling industry, we are well positioned to provide legal advice and support with any of the following topics:
- Review of Sales and Marketing/Compensation Plans (particularly with a view to striking a reasonable balance between upline commissions paid for sales to end-users and those paid for purchases of members participating in the compensation plan);
- Review of additional bonuses, incentives or other promotions granted to your salesforce;
- Review of Policy Manuals, Code of Conduct, Code of Ethics or any other document governing the relationship with your independent salesforce;
- Provision/review of distributor agreements, incl. terms and conditions;
- GDPR compliance;
- Market expansion into or within Europe;
- Assistance with DSA memberships.