Many Amway distributors use the above statement or something similar to it when recruiting people to sign-up for Amway. However it is phrased, they imply that retail sales to customers (non-distributors) are either not required or optional.
Let's face it -- there is a very valid reason why this is used. Most people are not salespeople and do not like to sell. If people are told upfront that to get that $6.00 performance bonus, you would have to make a sale to 10 retail customers or sell about $100 to retail customers every month, do you think recruitment might fall a little more than it has? Do you think that if it became mandatory to with-hold performance bonuses if the retail sales requirement was not met, that people might get upset and leave?
On this page, I will document substantial and credible evidence that to be considered a legal Multi-Level Marketing business, performance bonuses has to be tied to retail sales to non-distributors.
The first obvious ruling to research is the landmark FTC ruling in 1979 that declared that Amway was a legitmate business and not a pyramid. You can read the entire text of this ruling at the MLM Law Library. This is a very large document that deals with exaggerated income claims made by distributors and price fixing by the Amway Corporation, in addition to Pyramid Rules. It's well worth reading! It documents many of the things distributors said back in the 70's. It is interesting to note that not much has apparently changed. Many of the things that were said back in the 70's are still being used today.
Here are the few paragraphs from this ruling that explain why Amway was considered to be a legitmate business and not an illegal pyramid:
72. Amway, the Direct Distributor or the sponsoring distributor will buy back any unused marketable products from a distributor whose inventory is not moving or who wishes to leave the business. (RX 331, p. 17B to 18B; CX 847; CX 1076) The buyback rule has been in existence since Amway started. (CX 1041 J) Amway enforces the buyback rule. (CX 847; Brown, Tr. 501213; Bortnem, Tr. 686, 690; Soukup, Tr. 913)
73. To ensure that distributors do not attempt to secure the performance bonus solely on the basis of purchases, Amway requires that, to receive a performance bonus, distributors must resell at least 70% of the products they have purchased each month. (RX 331, pp. 16B to 17B) The 70% rule has been in existence since the beginning of Amway. (S. Bryant, Tr. 4086) Amway enforces the 70% rule. (Lemier, Tr. 19293; S. Bryant, Tr. 405659; Halliday, Tr. 6497)
74. Amway's 'tencustomer' rule provides that distributors may not receive a performance bonus unless they prove a sale to each of ten different retail customers during each month. (RX 331, pp. 1B and 17B) The Direct Distributors have the primary responsibility for enforcing the tencustomer rule in their own group. (S. Bryant, Tr. 406162) The tencustomer rule was started by Amway about 1970. Prior to that, there was a 25 sales rule which required the distributor to make 25 retail sales a month without regard to the number of customers. (S. Bryant, Tr. 408586) The tencustomer rule is enforced by Amway and the Direct Distributors. (CX 823; Case, Tr. 341415; Medina, Tr. 4197; Zizic, Tr. 413843; Lincecum, Tr. 1266)
75. The buyback rule, the 70% rule, and the tencustomer rule encourage retail sales to consumers. (Van Andel, Tr. 19992000, 2010; Halliday, Tr. 623133; Lemier, Tr. 176; Cady, Tr. 579597) [27]
The buy-back rule, the 70% rule, and the 10 Customer rule (slightly modified to state that to earn a performance bonus you must make either 10 sales to customers or sell 50 points to any number of customers) are still in the Amway Business Compendium. In fact, it was in early 1998 when Amway modified the 10 Customer Rule to the Retail Sales Rule that allowed distributors the option of selling 50 points to meet the retailing requirement to earn a performance bonus. When they modified this rule, they did not state that it was optional. The rule still clearly states that in order to earn a performance bonus, you must meet the retailing requirement.
However, in an interview with Greg Garland, an investigative reporter for The Advocate in Baton Rouge, LA, Larry Harper, a senior manager of Amway Corp.’s distributor relations section, acknowledged that bonus checks get paid to distributors who have no retail sales and that it was up to the Direct Distributor to decide if this rule should be enforced. To the best of my knowledge, there is nothing about this option in the Amway Business Compendium.
In the same article, Garland reported that Sharon Grider, Amway’s corporate counsel, said in a written statement that the FTC "does not mandate that Amway maintain the retail sales rule." Grider added that the FTC "does not require Amway to monitor compliance with this or any other rule."
Unfortunately for Amway distributors, the Ninth Circuit Court of Appeals rejected the arguements of Omnitrition International, another Multi-Level Marketing business, that its plan was not a pyramid based on the finding that the company failed to provide sufficient evidence that it actually enforced its policies. Although the company had policies in place identical to those implemented by Amway, the court stated that the mere existence of policies, without evidence of enforcement, renders the policies nugatory. You can read all about this case at the MLM Law Library -- The Legal Principles of Multilevel Marketing.
Ok...So now we have Amway admitting that they neither monitor or enforce it's rules and a ruling by a circuit court that they must be enforced. Hmmmm.
The next obvious question to ask is "Should the Retail Sales requirement be enforced?"
The answer to this question can also be found at the MLM Law Library. In the same document, The Legal Principles of Multilevel Marketing. The court found that personal consumption by a distributor's downline does not satisfy the Koscot requirement that sales be to the "ultimate user." Courts have interpreted and state Attorneys General are increasingly interpreting the term "ultimate users" to mean persons who are not participants in the program, that is to say persons who are not distributors.
I hope you read this document. This is a rather lengthy document, but in the Conclusions paragraph you can see that it clearly states:
In summary, the emphasis of any multilevel program must be on product sales rather than the enrollment of new distributors. To exist in the 90s and beyond, companies and distributors must make a paradigm shift from business based primarily upon recruitment of downline distributors and internal consumption. Distributors should be taught that their primary function is to gather customers. Their second priority is to build a downline and to teach it about the first priority.
Another document you should read at the MLM Law Library's website is The Personal Consumption Dilemma -- Messages from Webster v. Omnitrition This guide offers some guidelines as to what an MLM'er should so under these new regulatory requirements.
My Conclusions
If Amway was indeed enforcing the retailing requirement to earn a performance bonus when the FTC issued it's ruling, then sometime in the 80's the enforcement must have stopped. When I got started in early 1991, the Britt organization neither taught nor enforced the retailing requirement to earn a performance bonus. To the best of my knowledge, this is still not being taught today. Many distributors in other organizations have stated the same thing -- that Amway has become a wholesale buying club disguised as a business opportunity, with little or no retail sales being made.
I hope you visited the MLM Law Library's website and read the articles above. I certainly do not want you taking my word for any of the information I have posted on this page. The information at the MLM Law Library's website clearly shows that any Amway distributor who ignores the retailing requirement to earn a performance bonus may be in danger of running afoul of the illegal pyramid statutes at both the federal and state level.
If it is your intent to operate an honest, ethical, moral and legal Multi-Level Marketing business, please keep this in mind.
