Personal Perspectives on Critical Direct Selling Issues

This is the first edition of the President’s Papers, a series of personal perspectives on the most important issues confronting our industry. I’ve chosen to inaugurate, no pun intended, the series with a few observations on the vexing issue of proselyting.

These are my views and opinions, and this paper is not intended to constitute the Direct Selling Association policy position of legal advice of any kind. As is the case with any legal matter, I would recommend that individuals or organizations seek the advice of their own legal counsel.


A Vexing Issue

Call it proselyting, salesforce raiding, or poaching. Whether it’s an isolated instance or a regular occurrence, the practice of one company’s distributors recruiting distributors from a competitor raises legitimate concerns for all DSA member companies. It is probably the one issue about which I receive the most calls from concerned direct selling executives.

"Proselyting is never straightforward, and while it often results in sharp disagreements between companies and salespeople, the issue is one strictly internal to direct selling."

Over the years, the DSA Ethics Committee, expert legal counsel, the DSA Board, the World Federation (WFDSA) and others have wrestled with this issue. Salesforce raiding has spawned costly litigation between companies, salesforce members and others. Many direct sellers view proselyting as a stain on our industry and public reputation.

Here’s the rub though. Proselyting is never straightforward, and while it often results in sharp disagreements between companies and salespeople, the issue is largely confined to internecine concerns of direct sellers. I don’t believe the public thinks of direct salespeople moving from one company to another as an ethical or even a legal issue. Not once in 34 years of working on behalf of direct sellers, has a regulator or lawmaker raised the issue with me. That is not to say that proselyting does not strike at the core elements of direct selling. It does. Trust, confidence, belief in product, fair and accurate representations. Invariably, these issues arise in connection with sales force raiding.

Understandably, salesforce raiding provokes strong reactions within the direct selling community, but some competition for salespeople is inevitable. Distributors have a right to decide where and with whom they will work. They are free to communicate and develop relationships with distributors for another company. And, of course, we want direct selling companies to grow their business and salesforces. Moving freely within the direct selling retail channel can be an exercise of a distributor’s right to sell where they choose, and is, on the whole, a desirable thing for the marketplace.

The Legal and Market Realities

So, what can we do to address those instances of salesforce raiding that are inappropriate? The first is to recognize the legal and market realities. Under the law, independent sellers have the right to move from one opportunity to another, and any restriction on that exercise of a free market could very well be construed to be an illegal restraint of trade, or when done collectively a violation of antitrust law. Additionally, restricting an individual’s ability to pursue other opportunities could very well put their independent status at risk. That’s why the U.S. DSA Code of Ethics does not – cannot – specifically prohibit salesforce movement between companies. (Though it should be noted that the World Federation Model Code of Ethics does deal more directly with salesforce raiding issues, to be adopted by individual DSA’s as their countries’ laws allow. We simply cannot under U.S. law, and should not in service of a free and open market.)

"Distributors have a right to decide where and with whom they will work."

What We Have Done

  • The US DSA Code Recruitment Provisions - The DSA Code of Ethics does, however, prohibit unfair or deceptive recruiting practices, and in those instances where someone has lied or misrepresented facts about another company, its management, or its product, or its salespeople, in an effort to persuade others to join another company, there could indeed be a violation of the Code. And of course, in many instances of salesforce raiding, such misrepresentations are made. The Code Administrator will entertain complaints of this sort in connection with alleged proselyting.
  • The DSA Proselyting Guidelines - Additionally, DSA does have a proselyting guideline adopted by our Board of Directors that deems it improper to consciously target another company’s salesforce with the intent to interfere with that company’s contracts with members of the field. That type of activity could very well be subject to civil litigation as a “tort.”
  • Thus, recruitment of distributors from a competitor that constitutes a breach of binding contractual commitments to the distributor’s original company potentially expose the recruiting company and their recruits to litigation and violate the DSA guideline. Additionally, salesforce raiding that involves denigrating another company’s products, services, personnel or marketing plan, and spreading malicious rumors and misinformation is highly unethical and violative of the DSA’s Code of Ethics.
  • Proselyting Materials to be Used by DSA Members - DSA has assembled a kit of materials explaining the DSA Code and the proselyting guideline. It includes an open letter to the field about the issue that can be tailored to any company dealing with such activity, and other helpful materials. And I will make myself to key members of the salesforce to explain these matters when field concerns about poaching activities requires it.
  • Communications between Companies – Often concerns about salesforce raiding are based on rumors from the field or an instance of one salesperson’s word versus another. Company executives are forced to “go to the mattresses” in a battle to defend the honor, credibility, and incomes of their salesforces. Frequently, the allegations are inaccurate, or at least cannot be credibly proven (that’s why litigation is ultimately costly and frequently unsatisfying.)
  • Sometimes, effective and direct communication between the affected companies about the concerns and the facts on the ground can alleviate misunderstandings and debunk claims of organized raiding campaigns, interference with contracts, and/or misrepresentations about the other company. DSA facilitates full and forthright contact between executives that can help defuse potentially litigious situations with mutual agreements based in respect for the effective, competitive marketplace for the field and consumers. Call me if you need to open that line of communication with another company!

Avoiding Potential Pitfalls

What might companies - either as alleged perpetrators or victims - do to avoid these instances of salesforce raiding when litigation as a first resort isn’t a wise course of action, nor the most cost-efficient?

  • Policies and Sanctions - Have policies – drafted and reviewed by legal counsel - that accurately state the company’s position about how to handle the free movement of salespeople between companies.
  • Prohibit unfair or deceptive statements in connection with recruitment by your salesforce or employees. Prohibit interference by your salesforce or employees with legitimate contracts of other companies.
  • Have sanctions in place for violations of these policies and be able to demonstrate to others that you enforce such policies. This will go a long way to answering claims by another party who believes that your company is “winking” at  misrepresentations or interference.
  • Avoid Questionable Payments - Prohibit payments for salespeople who are leaving one company for another when those payments are for recruitment rather than product sales or if those payments effectively interfere with another company’s binding contracts. Such payments could be the basis of pyramiding allegations or subject to tort claims.
  • Gather Evidence and Attempt to Mediate – When an allegation of salesforce raiding is made by you or against you, a sensible first step is to gather evidence to make certain of the facts involved in what can often be they said-we said disputes. Is an instance of unethical recruiting a frequent occurrence or an isolated example? Was it done at the direction or encouragement of a company or was it the unsanctioned behavior of one or more of its distributors? Once the facts are clear, attempts at mediating the dispute should usually precede recourse to litigation.
  • Market Your Company on the Basis of Merit - It is difficult to see salespeople leave to go to another company. That difficulty is compounded when a company may be otherwise struggling with sales or recruitment. The most successful direct selling company executives have told me that their best response to these matters is to rely on the quality of its products or services and the earning potential they offer, as well as the strength of their commitment to the highest ethical standards. This, they contend, is the best way to defend against salesforce poaching, and to resist those who would build your company through inappropriate poaching.

I agree with that belief, and urge all direct sellers to always compete through fair, straightforward, honest, competitive compensation plans and products - pure and simple.

If you’d like to discuss the issue with me  personally, drop me a line at joe@dsa.org.

Best of Luck,

Joseph N. Mariano