CPA and MLMs

[mlmQuestion]

What I don't understand is how does MLM companies manage to pay their members commission (legally), I paste the section of the CPA that concerns me:

The CPA, Chapter 2 Part E – Referral selling:
38.
(1) A person must not promote, offer, supply, agree to supply or induce a consumer to accept any goods or services on the representation that the consumer will receive a rebate, commission or other benefit if-
(a) the consumer subsequently-
(i) gives the supplier the names of customers; or
(ii) otherwise assists the supplier to supply goods or services to other consumers; and
(b) that rebate, commission or other benefit is contingent upon an event occurring after the consumer agrees to the transaction.

How do MLMs get passed this law?

[AmithS]

MLM ?

[mlmQuestion]

Multi Level Marketing Businesses

[AmithS]

thanks for the reply,

so what is it that you guys do exactly? I gather marketing but why multi level?

[mlmQuestion]

Its an efficient way to build a network in which products/services can be sold

[AmithS]

like a business network? where you meet people on a regular basis and pass referrals etc...

[AndyD]

like a business network? where you meet people on a regular basis and pass referrals etc...

Not really, that's just business networking which is different. MLM is much more like a pyramid scheme you join and you earn commissions but there's 'product' involved. link

The OP has a very good question though on how MLM fits in with the new CPA.

[Dave A]

The OP has a very good question though on how MLM fits in with the new CPA.

Agreed.

Given that MLM has been around a lot longer than the CPA, it makes you wonder if the law makers had MLM in mind when they drafted this section of the CPA!

[AndyD]

Lol. Looks like pyramid schemes that aren't offering tangible product or services would not be effected but most legit MLM schemes are going to fall foul.

[Dave A]

I've been chewing on this quite bit, and one of my techniques is to break things up.

There are three parts that must be met for the section to be applicable. Break any one of these parts and the entire section is not applicable. So:

(1) A person must not promote, offer, supply, agree to supply or induce a consumer to accept any goods or services on the representation that the consumer will receive a rebate, commission or other benefit if-

I suggest solved by separating the promotion and/or supply of the product from the promotion of the business opportunity.

(a) the consumer subsequently-
(i) gives the supplier the names of customers; or
(ii) otherwise assists the supplier to supply goods or services to other consumers;

Solved by providing no upline support in the consumer's efforts to build their own business. Still chewing over the possibility of a softer option to overcome this part.

and
(b) that rebate, commission or other benefit is contingent upon an event occurring after the consumer agrees to the transaction.

If this condition doesn't apply to the situation, you're not in contravention of the entire section either. I couldn't think of a way to avoid the condition arising in an MLM environment, though (at least not yet). It's perfectly normal business practice for commissions to be contingent on sales occuring, which I expect would be deemed an event.

And if I may repeat - you only have to break one part to render the entire section not applicable.