Direct Sales and MLM

Our Distributors Are Saying What? A Conversation about MLMs and Their Social Media Policies

By
Kevin Thompson

The rise in social media has changed the way EVERYONE communicates. This is especially true for network marketers that are financially incentivized to promote their products loudly and proudly. From Twitter and Instagram accounts to public and private Facebook groups, it’s now easier than ever for direct sellers to share their messages. While a huge benefit for distributors, social media activity presents numerous challenges for companies and their compliance departments.One of the biggest misunderstandings we hear is, “Well, the company isn't responsible for what our distributors say.”< class="size-full wp-image-2882 aligncenter" src="https://dev-thompson-burton-wpms.pantheonsite.io/mlmattorney/files/2019/07/tenor.gif" alt="" width="220" height="165" />As we’ve said in the past, regulators hold companies responsible for false and misleading claims, period -- even those claims that come from distributors. In fact, the FTC's Endorsement Guides makes this crystal clear: Statements made by anyone with any sort of contractual connection to a company are treated as if the company itself made the statement. Now more than ever, watchful eyes take note of statements made by the sales force of a company. Organizations like Truth in Advertising (TINA.org) shed light on problematic health and income claims made online by MLMs and its distributors. Without question, this sort of exposure has even triggered regulatory actions.With an assortment of communication avenues available by way of social media (e.g., Facebook, YouTube, Twitter, Instagram, blogs, message boards, chat rooms, etc.), network marketing companies face increasingly tall tasks in creating (and enforcing) clear policies for their salespeople. In deciding how to best craft these social media policies, companies should grapple with two important questions as guideposts. The first is what can we, as a company, legally do to shape our distributors' use of social media. And maybe even more importantly, what should the company do in policing distributors' social media.

What Can the Company Do?

Legally and contractually speaking, quite a bit. An MLM's Policies and Procedures should clearly articulate how distributors can market themselves and the company's products/services online, particularly with respect to social media. These policies should address important questions like: (i) whether a distributor can promote another company's products/services on social media; (ii) whether a distributor can solicit customers/distributors for another network marketing opportunity via social media; (iii) ramifications for cyber-bullying and hate speech; and (iv) the time period in which a distributor should remove inappropriate posts. From a liability perspective, companies that expect strict compliance with social media policies greatly reduce their regulatory risk. Clear social media "cans" and "can't dos" in Policies and Procedures assist companies in shaping healthy behavior. Assuming that specific policies are actually enforced, they also support the theory that the company conducts adequate due diligence in making sure people conduct themselves in a lawful manner.

What Should the Company Do?

Increasingly (and intelligently in our view), some companies are trying to exercise an additional layer of monitoring over distributor social media activity. For example, these P&Ps feature provisions that require the distributor to relinquish control of a website or social media group (Facebook Group) after resignation/termination. For starters, why would a policy like this even exist in the first place? Once out the door, a former distributor can simply re-purpose the Facebook Group as a means to promote another opportunity. More often than not, this behavior could implicate concerns surrounding non-solicitations, cross-recruiting, and non-competes.While a company can absolutely request the removal of trademarks, copyrights and other rights of publicity from a former distributor's social media, a relinquishment of ownership over a social media account more often equates to companies biting off more than they can chew. In an employer and employee relationship, some courts have even held in favor of an employee maintaining ownership of social media accounts created at the direction of an employer. Because distributors are independent contractors who supposedly maintain freedom over their work, it's even less likely that courts would side with companies who seek to exert ownership over a former distributor's social media. In the end, it would boil down to a contract dispute if/when a distributor re-purposes a social media presence for another company. While the distributor can easily be terminated, it will be nearly impossible to get him/her to completely pull down a social media account without investing serious funds into litigation (with no guarantee of success, much less).

The Potential Issues Surrounding Facebook Groups

< class="size-medium wp-image-2895 alignleft" src="https://dev-thompson-burton-wpms.pantheonsite.io/mlmattorney/files/2019/07/neonbrand-I6wCDYW6ij8-unsplash-242x300.jpg" alt="" width="242" height="300" />A hot topic within the network marketing industry is distributor use of the Facebook Group feature. In an effort to make the Facebook experience feel smaller, more local, Facebook is making it a point to highlight its private groups feature. In creating a public or private Facebook Group, influential distributors can consolidate a community of like-minded people into a single spot. Almost overnight, the administrators behind a Facebook Group suddenly possess access to the newsfeeds of a sizeable audience. Quite often, these Facebook Groups can become a huge source of misinformation much to the dismay of companies. These groups can produce disparaging and false statements about the company or inappropriate testimonials about products (i.e., illegal health/disease claims). Worse yet, the companies very likely lack visibility into these Groups, which allows the bad behavior / bad information to spread like a virus without the company's knowledge. While a hugely effective marketing tool for distributors, Facebook Groups leave companies in a tricky spot. Should the Company take a hands-on approach, actively monitoring the conversations within? What if the group is private and requires approval to even join?From a legal perspective, regulators do not take very kindly to the head-in-the-sand approach. The FTC expects companies to stay actively engaged and apprised of field conduct. An influential private Facebook Group is no different. Therefore, in our view, a company should have policies addressing Facebook Groups and similar social media activity. Specifically, the Policies and Procedures should address the requirement that an administrator of a private group must provide the compliance team with access. Beyond just monitoring for inappropriate testimonials or disparaging behavior, access to the group also affords compliance the opportunity to look out for signs of re-purposing. If re-purposing occurs and the distributor has not yet left the business, the company can use policies to support the decision to terminate the offender's business.

Conclusion

At the end of the day, network marketing companies must assume responsibility in promoting the kind of behavior it expects from its field. That's a tall order in the absence of well-defined policies on social media. As the industry's growth continues to directly coincide with the rise of the tools available online, it's downright foolish for companies to refrain from getting involved in how its products and services are being promoted online. At Thompson Burton, we've done considerable research on the subject regarding how the distributors' First Amendment rights interplays with the company's interest to operate a safe business. We help clients create policies, both internal and external, that make these waters more navigable.

More Insight

February 26, 2024
By
Clay Brewer
Thoughts A Brewin' Newsletter 7: The California Risk
Learn more
Learn more
February 8, 2024
By
Clay Brewer
Thoughts A Brewin' Newsletter 6: Culture is Dead
Learn more
Learn more
January 29, 2024
By
Brooks Brasfield
Breaking Bad? Navigating the Corporate Transparency Act for Small Business Owners and Commercial Real Estate Investors
Learn more
Learn more