CANADA EFFECTIVELY SHUTS OUT MOST NEW MLM COMPANIES
YOU NEED CUSTOMERS - NOT PARTICIPATING IN THE OPPORTUNITY!
PARTY PLANS ONLY?
Update Dec 2004 - During a more recent discussion of this issue Industry Canada indicated that the way the plan then under review tied the product pack to the qualifying threshold resulted in the conclusion that the plan would operate with a de facto required product purchase. The co-existence of the two does not by itself necessitate a negative opinion on the issue in Canada. A number of factors can be relevant to the determination.
Cory Lewis
Barrister & Solicitor
(See bottom of page)
Sept 20004
Hello Rod
Industry Canada has recently issued a negative opinion that may be relevant for a number your clients considering operating their plans in Canada. Your vision on customer driven pay plans may be becoming a hard reality.
Several common plan elements were addressed in the opinion.
1.
They considered the combination of a one time qualifying volume threshold with an optional product package that satisfied that qualifying volume threshold to be a defacto prohibited product purchase requirement. They reasoned that by tying the two the company created an inducement for participants to purchase the package.
The plans products could be purchased for tens of dollars. The package price exceeded $100 dollars.
2.They articulated a test for monthly volume requirements. They wrote, "It should be noted that although any minimum threshold business volumes may raise issues with paragraph 55.1(1)(b) of the Act, we are of the opinion that should a particular threshold be minimal and reasonable given the nature of the marketing plan, and the product, that the commissioner would be unlikely to believe that there were sufficient grounds to commence an inquiry.
For plans with products in the tens of dollars, they appear to consider "minimal and reasonable" to be in the low to mid tens of dollars.
3.They decided that a participant return policy requiring participants returning product (other than for damage or incorrect shipment) to terminate their plan participation raised issues under both the commercially reasonable return right provision and the inventory loading provision.
When I discussed this issue with them they indicated that they had given it great consideration. Although they had been told that they had issued positive opinions for plans that used the same provision they indicated that their search of their opinion database did not reveal an opinion in which they had specifically addressed this issue. Both my office and Industry Canada may be correct.
Based on discussions with them regarding this opinion and their review process, it would be prudent to assume that plans that have an obvious emphasis on product sales to non-participants receive a more favourable treatment than plans that do not. Consequently, it would be prudent to have this emphasis obvious not only in the plan’s product marketing materials but also in the plan’s compensation plan explanation and policies and procedures. As evidence I offer the fact that they have previously issued positive opinions for plans with an emphasis on sales to non-participants that had the above termination provision in the participant right to return product. However, once they formed the opinion the recently reviewed plan would operate with a defacto product purchase, they went on to address negatively the return termination provision that they had not previously considered to raise an issue.
I believe a more cautious approach by Industry Canada has resulted in part from the change which made Industry Canada legally bound by their opinions. Prior to the change non-binding opinions were issued. Prior to the change plans that could operate either with or without sufficient sales to non-participants could benefit from a wait to see approach in which positive non-binding opinions could be issued containing a warning that should insignificant sales to non-participants result, Industry Canada could commence an inquiry. With the change to binding opinions Industry Canada may have difficulty acting against a plan for which they are bound by a positive opinion if the materials on which the opinion was issued are the materials used to operate the plan. Consequently, they may be more likely to issue a negative opinion warning of their concerns when considering plans which they suspect may operate with insufficient sales to non-participants. They raised their concern over how to treat plans for which the language and presentation were neutral but in operation could operate either way during a recent conversation. A public consultation on their service standards is scheduled for November and I understand this issue may be addressed at that time.
Sincerely,
Cory Lewis
Barrister & Solicitor
Preferred Areas of Practice: Canadian multilevel marketing and direct selling law and related matters.
www.havenport.com
Telephone: (204) 792-9982
Winnipeg, Manitoba, Canada
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