Direct Selling Legislation

Direct selling businesses and independent direct sellers are subject to the same financial and consumer protection legislation that govern any business selling consumer goods services. However there are a few additional legislative requirements. These are:

Licences

In the UK, there is no requirement for a company or an individual to have a license to operate a direct selling business. The same is generally true for direct sellers, although licenses are required in the Isle of Man and certain Channel Islands States. If a direct seller makes an unsolicited call on a private home; makes a sale; delivers the goods and collects payment simultaneously, they may be required to have local police authority permit.

Order Cancelation Rights

All direct sales away from normal retail premises are subject to the consumer being given a cooling off period in which to cancel their order. The law requires that if the sales approach was unsolicited and if the order was in excess of £35 then the consumer must be provided with a notice setting out their right to cancel the order within 7 days. For DSA members, the DSA Consumer Code extends this period to 14 days for sales of any value and regardless of whether it was solicited. Similar requirements, under the Distance Selling regulations govern orders received by a direct seller by phone, mail or e-mail. For further information, consult one of the legal advisors to the DSA.

VAT

Direct selling businesses in the UK, are subject to special rules in relation to VAT. These require that a direct selling business is required to collect at the retail selling prices of the goods sold, regardless of whether their independent direct sellers are personally registered for VAT. For further information consult one of the tax advisors to the DSA.

Multilevel Marketing

Many direct selling businesses are now organised on a MLM or network marketing basis, although they may use neither term in their promotional material. The distinction between MLM and a conventional direct selling structure is the nature of the earnings opportunity offered to new direct sellers. If a participant is offered an opportunity to both retail products and to receive additional rewards from the sales of others they may recruit into the business, then the business is likely to be MLM or Network Marketing and therefore subject to the Trading Schemes Regulations 1997. For further information and advice, consult one of the legal advisors to the DSA.

Summary of UK legislation governing Multi Level Marketing

(effective 6 Feb 1997 for new businesses and 5 Aug 1997 for businesses in operation prior to 6 Feb)

1. Relevant Act of Parliament
   Fair Trading Act 1973, Part XI, as amended by the Trading Schemes Act 1996. (The Act)

1. Definition of a regulated scheme
   Section 118 of the Act

Any scheme where a promoter supplies goods or services which are supplied:

1. to other persons under transactions effected by participants, or
2. to persons introduced by participants and, in either case, where the prospect of benefits is offered to participants in respect to any of the following:

   • introduction of other participants
   • continued participation of participants
   • change of status of participants within the scheme
   • acquisition and or supply of goods and or services to or by any person

Exclusions

These include direct selling businesses where:

• all participants are VAT registered
• the sales plan is single level and the maximum reward for recruiting another participant is £50.

3. Trading Schemes Regulations 1997
   Section 119 of the Act

Promotional Material

All recruitment material other than newspaper, magazine advertisements and on radio or television, but including video and the Internet, must include the following:

• the name and address of the promoter#
• a description of the products and or services offered
• prescribed references to the recruitment offence and earnings claims.

Advertising

All recruitment advertisements in newspapers and magazines must comply with the ASA Code.

Contracts

All participants shall be provided with a written and signed contract which shall include:

• name and address of the promoter and a description of the products and or services,
• description of the participant's role and financial obligations for 12 months, which the promoter can only change by giving at least 2 months' notice,
• statements giving a 14 days cooling off period and thereafter, 14 days in which to terminate a contract without penalty,
• terms under which goods can be returned for refund and under which previously paid commission and bonuses may be recovered,
• prescribed warnings relating to the recruitment offence and earnings claims.

Initial investments

No more than £200 may be received or promised by a participant within 7 days of signing a contract.

Rights on termination of a contract

On termination of a contract, a participant has a right to:

• be released from all future obligations other than 'poaching' and any non-competing obligations specified in a contract, and to
• return goods in good condition and recover the sum paid, inclusive of VAT, if purchased within 90 days of termination. This would be the full sum paid where the promoter terminated the contract. On termination by the participant, then the sum would be reduced by diminution in value caused by the participant and by a reasonable handling charge.

Recovery of commissions

On termination of a contract, a promoter may only recover those previously paid commissions relating to returned goods that were paid within 120 days of termination.

Sales records

A promoter must supply participants with an invoice or receipt in respect of all purchases of goods and services.

4. Offences
   Section 120 of the Act

It is an offence for anyone who is a promoter or participant in a regulated scheme to:

• invite anyone to make payments to the promoter or to a participant in a scheme by promising benefits in respect of the introduction of other participants into the scheme.
• contravene the Trading Schemes Regulations 1997.

The above is an extract from the DSA website