Free Enterprise and Non-compete Clauses

Due to all the hub-hub about 8 IBOAI board members wanting to leave Quixtar and be free of the Quixtar non-compete agreement, I remember our old friend "Lawdawg" and his article on the subject.  Here it is for your reading pleausre.  Don't forget, Lawdawg's blog can still be found on Archive.org.

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Did you know that Amway/Quixtar distributors are required to sign a "non-compete agreement?"

What does that mean? It means that when you become an Amway/Quixtar "Independent Business Owner" or "IBO" you forfeit your right to sell any products that would compete with products sold by or through Amway/Quixtar. The "non-compete" rule reads as follows:


6.5. Non-Competition and Anti-Raiding: The Corporation and all registered IBOs share a competitive business interest in maintaining the integrity of the Line of Sponsorship, which was developed exclusively for the purpose of distributing products and services offered or marketed by the Corporation and compensating IBOs for marketing and merchandising such products and services. In order to protect these interests as well as those detailed in Rule 4.27.1., current and former IBOs must not use the Line of Sponsorship to sell, distribute, or promote competing products, services, or other business ventures, or otherwise interfere in the Quixtar business of other IBOs.

6.5.1. For purposes of this Rule 6.5., "Compete" means to own, manage, operate, consult for, be employed by, or participate as an independent distributor in (a) any other direct sales program using a multilevel or "network" marketing structure, or (b) any other enterprise that markets, through independent distributors, products or services functionally interchangeable with those offered or marketed by the Corporation.

6.5.2. For purposes of this Rule 6.5., "IBO" means an IBO who is either currently registered or has been registered at any time within the past two calendar years.

6.5.3. Every IBO agrees not to Compete, directly or indirectly, with the business of the Corporation while registered as an IBO.

6.5.4. Every IBO agrees not to Compete, directly or indirectly, with the business of the Corporation in the U.S., Canada, and all offshore markets operating under the North American Independent Business Ownership Plan during the six-month period following (a) the voluntary or involuntary resignation, non-renewal, or termination of that IBO's independent business, or (b) any violation by the IBO of this Subsection 6.5.4., whichever is later.

6.5.5. Every IBO agrees not to encourage, solicit, or otherwise attempt to recruit or persuade any other IBO to Compete with the business of the Corporation.

6.5.6. Nothing in this Rule 6.5. restricts the sale or distribution of privately developed Support Materials ("SM"), Business Support Materials ("BSM"), and Product Support Materials ("PSM") in accordance with Rule 7 and Rule 4.14.

6.5.7. Nothing in this Rule 6.5. restricts the right of an IBO to carry on a trade, business, or profession that does not Compete with the Corporation and to serve customers or clients who happen to be IBOs in accordance with Rule 4.14.

6.5.8. Nothing in this Rule 6.5. restricts the right of an IBO to employ or be employed by any person that is not an IBO and is not a company owned or controlled by IBOs following the voluntary or involuntary resignation, non-renewal, or termination of that IBO's independent business.

6.5.9. Nothing in this Rule 6.5. restricts competition between registered IBOs (a) in the sale of products or services offered or marketed by the Corporation to Clients, Members, or other customers or (b) in the registration of new IBOs, Members, or Clients.

6.5.10. Every IBO acknowledges that violation of any subsection of this Rule 6.5. will cause significant and irreparable harm to active IBOs and the Corporation, warranting an award of injunctive relief, including a temporary restraining order and/or a preliminary injunction, specific performance, and damages including costs, attorneys' fees, and disgorgement of all profits made as a result of such unauthorized activity.

6.5.11. An IBO's obligations under this Rule 6.5. shall survive and remain enforceable following the voluntary or involuntary resignation, non-renewal, or termination of that IBO's independent business.

6.5.12. If an arbitrator or court of competent jurisdiction determines any subsection of this Rule 6.5. to be unenforceable in any respect, then it shall enforce that subsection to the fullest extent permitted by law without affecting the enforceability of all remaining subsections.


Seems like an odd thing to have in the "Independent" IBO distributorship agreement, especially considering the fact that Amway/Quixtar claims to pride itself on being a bastion of free enterprise.

Well, I know free enterprise - and you sir, Mr. Non-compete covenant, are not free enterprise. You go by a different name - "protectionism." You see Amway/Quixtar doesn't want it's "independent" distributors to sell products produced by anyone else. What are they afraid of? In the world of free enterprise and free market economics, they should have no worries if Amway/Quixtar products are of good value and competitively priced. And what business is it of theirs what other products an "independent" distributor chooses to sell?

More importantly, what does this do to the so-called "independent distribuotrs" and their "businesses"?

A sales business succeeds because it fills a perceived need in a way that is efficient enough for the business to profit. That means being able to give customers what they want from what the business can get in a way that meets the customers' needs efficiently and affordably. The day IBOs sign the IBO contract, they are agreeing to NEVER market any products that would compete with anything sold by Quixtar under Rules 6.5.3 and 6.5.4.

What does this mean? It means that if your customer likes "SA-8," but doesn't like "LOC," you can't go get them another all purpose cleanser without breaching your contract. A real "independent" businessperson has control over his or her ability to choose the products and services his or her customers want. It also means that if you find a competing product that fills your customers' needs and costs less, or a product that will satisfy your customers but can be sold with a higher profit margin (that would be more money in your pocket for your sales efforts) you do not have the freedom to choose products that better meet the needs of your customers or your bottom line.

And if Quixtar thinks an IBO has breached the contract (whether the IBO has or not), guess who decides what happens to the IBO and its business?

That's right . . . Mandatory arbitration with Quixtar's Board of Neutrals. Good luck IBO. You'll need it.

And what happens if the IBO resigns, or loses in arbitration after getting terminated (and the IBO will lose). The non-compete covenant stays in effect under Rule 6.5.11 even after the IBO quits or is terminated. If the IBO's income is from sales, that could mean he or she is permanently out of business.