SEPARATING FACT FROM FICTION Defining the Conditions for Distributor Harm in Direct Selling Opportunities
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irect selling is a popular option for millions of Americans because of the work–life flexibility, high-quality products, and supplemental earning potential such companies offer. In addition to these attractions, some of those new to the direct selling channel also seek short- or longterm earning potential—even though by definition, these entrepreneurial financial rewards are uncertain. That uncertainty has been the springboard for litigation against some direct selling companies on “distributor harm” grounds—lawsuits filed that have argued that companies have misled independent contractors about the business. Harm to direct selling distributors is sometimes alleged to occur when few distributors earn commissions from the firm or when analysts argue distributors “make a loss” from participation. Harm is similarly inferred when some distributors argue that the outcomes from their distributorships are less than they expected when enrolling. Or, harm may be alleged when observing strong levels of personal consumption of the firm’s products by distributors. Dr. Anne Coughlan, Emerita Professor of Marketing at the Kellogg School of Management, Northwestern University, has observed several such claims during her more than twenty-five years spent studying direct selling as a distribution channel. Dr. Coughlan comments, “Even when accurate, these observations don’t imply or prove that the company misleads distributors, acts fraudulently, or runs an illegitimate scheme, because they fail to capture the variety of motivations and values in a direct selling distributor force, as well as the difference between entrepreneurial uncertainty and fraudulent misrepresentation.” She adds that these observations are sometimes combined with an “attack on direct selling as a
suspicious scheme, rather than as yet another perfectly reasonable distribution channel structure and strategy.” Dr. Coughlan’s research paper “Consumer Harm from Voluntary Business Arrangements: What Conditions Are Necessary?” addresses the nature of harm in entrepreneurial opportunities like direct selling distributorships, showing that the uncertainty and risk inherent in these opportunities are not sufficient to argue true harm to their participants. Voluntary Business Arrangements The gig economy is characterized by flexible parttime jobs or temporary positions filled by independent contractors. These jobs and positions, or “gigs,” are what Dr. Coughlan refers to as “voluntary business arrangements,” or VBAs. Examples of VBA participants include Uber or Lyft drivers, Etsy craft artisans, and direct selling distributors. Dr. Coughlan notes the importance of the voluntary nature of VBA participation. A VBA participant chooses to engage in the business arrangement—or, in the case of direct selling, the distributor’s business opportunity. VBA participants are independent contractors, not employees. Therefore, they are entrepreneurs: they get paid when they create their own results. They choose their work hours, they choose what they are going to sell, and they choose how much to invest in improving themselves. They also choose to sign a voluntary contract, which defines the responsibilities, rights, and possible investments of both the provider or platform—eBay, Uber, the direct selling company—and the participant—the eBay reseller, the Uber driver, the direct selling distributor. “When you attach your signature on an agreement to become a direct selling distributor, you have signed dsa-dsj.org
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