Affiliates self-funding commission qualification = pyramid?
The single-biggest takeaway from the Vemma preliminary injunction order was the correlation of affiliates self-funding commission qualification.
This wasn’t just a Vemma issue, it’s patently widespread throughout the entire MLM industry.
Following the Vemma preliminary injunction, what could follow is the biggest MLM compensation plan shakeup we’ve seen in years.
Before we get into the Vemma decision, let’s clarify exactly what we’re talking about here.
The issue at hand is MLM affiliates self-funding their monthly commission qualification. This is typically done through tracked “Personal Volume” (PV), which more often than not is an affiliate’s own monthly purchase of product (via autoship or otherwise).
This is a widespread practice throughout the MLM industry, with most opportunities counting both retail sales and affiliate purchases towards commission qualification.
As part of the Vemma preliminary injunction decision, Judge Tuchi granted the injunction but sought to preserve ‘aspects of the business (that) are (not) necessarily pyramidal or otherwise illegal‘.
To that end Tuchi granted a “tailored” injunction, with one of the clauses in it as follows:
Regarding the pyramid scheme, the Court will enjoin those features of Defendant’s Marketing Program and bonus structure that tie bonuses primarily to recruiting and to the purchase of product principally to stay eligible for those bonuses.
This will include a prohibition of the sale of Affiliate Packs, and the linking or tying of an affiliate’s eligibility for bonuses or accumulation of qualifying points to their own purchases of Vemma product, whether through participation in the auto-delivery program or otherwise.
What we have there is a landmark legal decision, directly correlating an MLM affiliate’s purchase of product for commission qualification to operation of a pyramid scheme.
No “ifs”, no “buts”, no “what abouts”… it’s right there in plain English.
In order to effectively cease Vemma’s product-based pyramid scheme, Judge Tuchi felt putting a stop to affiliate’s self-qualifying for commissions via purchases was necessary.
Prior to Tuchi’s decision, Vemma and other companies had argued affiliates who didn’t recruit and/or earn commissions were retail customers.
Thus the purchases these affiliates made were infact retail sales, equating to retail sales being made for said affiliates to qualify for commissions (regardless of whether any were paid or not).
As ridiculous as that sounds, that’s currently the grey status quo embraced by many established MLM opportunities.
As of a few hours ago, this is now the legal reality of such claims:
(Vemma’s) proposed reclassification of Affiliates to customers is not based in fact.
(Vemma) have offered no evidence to support a finding that a Vemma participant who intended to be just a customer accidentally identified himself or herself as an Affiliate, or had any motivation to do so.
In summary, MLM companies cannot make blanket assumptions about why their affiliates are affiliates.
And not offering a preferred customer class and instead trying to reclassify your affiliates as customers doesn’t cut it either, with Judge Tuchi labeling this practice a ‘misrepresentation (of) how many failed Affiliates there likely are‘.
So what does this mean for the MLM industry at large?
It means that the days of MLM affiliate’s qualifying for commissions via their purchase of products are over.
MLM affiliates are not retail customers and sales must be made to said retail customers in order for an affiliate to qualify for commissions.
Failing which, we have a legal correlating such behavior with the operation of a pyramid scheme.
Now the question is, “what is the MLM industry’s reaction to this decision going to be?”
I suspect a number of MLM lawyers are going to receive calls this weekend and early next week, with company owners wanting to know what the Vemma decision means for their business.
Either those lawyers are going to recommend the immediate implementation of retail sales volume qualifiers for affiliate commissions, or they’re going to sweep this under the carpet and hope they fly under the FTC’s radar.
We’ll be watching…