THE “PERFECT STORM” OF COMPANY-DISTRIBUTOR CONFLICT
by, David G. Eisenstein, Esq.
What are the “lethal” ingredients of the MLM company dispute with a distributor which results in litigation being filed by one against the other? Are there common denominators which are present in virtually every major dispute between a company which has experienced success and one of its distributors who could be described as a key distributor? When these elements coincide with each other, do they combust to amount to a “perfect storm” of company-distributor conflict? Consider the following three major components which are generally a part of major legal conflicts between companies and one or more of their key distributors:
First: The company has survived past the day to day existence it experienced when it was a new company, experienced strong growth in sales and distributors, but now its sales are flat and the company has made some decisions which are detrimental.
It takes hard work, a great product line, a terrific compensation plan, and an energized field of distributors for a new network marketing company to become and remain successful. Once the product sales go flat as they inevitably will in this industry, the minority of companies that fit the “perfect storm” of MLM litigation profile make serious mistakes in the face of their flat sales, instead of making good decisions which further energize the field of distributors, such as coming out with innovative new products, or changes to the compensation plan which add value to the distributors.
The mistakes generally take the form of poor choice of new products being launched and/or negative changes to the compensation plan, amounting to arbitrary changes in the compensation plan which are actually a concerted program of “take aways” which are intended to rein in the incomes of the company’s key distributors to make up for the company’s flat sales or lost profits. The negative changes are all too transparent to the field of distributors as representing attacks on their “income streams,” their “residual income” that they have worked so hard to build.
Second: The company is arrogant or acting arrogantly toward the particular key distributor
We have all seen the companies and their owners/executives that have experienced substantial success in the network marketing industry and who, rather than having been made better for their struggle to gain industry prominence have equated their success with their feelings of superiority and invulnerability which oftentimes could not be seen in their makeup when they were smaller, struggling companies. In other words success has changed them and they have a scarlet “A” for arrogant emblazoned onto the smug faces of their most powerful decision makers.
When they were small and hungry companies, striving for success, they needed every one of their key leaders to pull with them to become successful. Now that the company has made it past the stage where its owners/executives must always be concerned over whether the company will survive the week or the month, a certain sense of inevitability and sense of entitlement has replaced what was the enthusiastic, innovative, and above all fair and gracious approach to treatment of its leading distributors.
Third: The key distributors look at other opportunities, and get involved with a different company, and although they may attempt to be honorable about the new involvement, are viciously attacked by their first company for cross-recruiting.
When sales go flat and the owners/executives make the mistakes described above, hoping to regain sales growth and profitability, the key distributors of such companies suffer. When they suffer, you can bet their downline of distributors contains many who are suffering. As leaders, the key distributors feel a sense of responsibility to the downline distributors whom they, in essence, are responsible for bringing into the company.
If the loss of income by the key distributors is accompanied by transparently mistaken moves by the company to regain its lost glory, these leading distributors, being the capable intelligent people that, by their hard work and creativity, brought success to the company, will listen to key distributors and owners/executives of other successful companies who would like to recruit them. They are vulnerable to such attempts because of the flat or declining sales and mistaken actions of their old company. Many of these leaders try to stay loyal to their old company and do not engage in “slash and burn” or “raids” on their downline or crosslines in their old company.
The last mistake of the old company which results in the occurrence of the “perfect storm” of MLM conflict between company and key distributor, is the company’s overreaction to the key distributor’s decision to build a downline in another company. The overreaction usually takes the form of suspension without any sort of process which is due, quickly followed by arbitrary termination, or in some cases, the mistaken, arrogant company (remember, this is a minority of companies) will skip suspension, a hearing or appeal altogether and simply terminate the key distributor based on hearsay and suspicion instead of solid evidence of serious downline and crossline tampering that constitutes “raiding” and/or “slash and burn.”
Next comes the company’s biggest mistake of all. The company does not let the distributor sell his or her “income stream” representing the residual income which the distributor has worked so long and hard to build, but instead the company arrogantly, and in legal terms, mistakenly, takes the position that the distributor has “forfeited” their rights to sell their position. You know, or can guess, what happens next: COME NOW THE PLAINTIFFS…. Game on!
Conclusion:
If any of the above ingredients of the “perfect storm” are missing, it is highly unlikely that a wrongful termination lawsuit brought by the distributor or a request for injunction brought by the company to enjoin unfair competition from the distributor would be necessary. Perhaps due to the stakes involved, companies who might otherwise succumb to the failings outlined above, should work to handle their problems in a way which lacks arrogance and which does not result in an attempted forfeiture of the distributor’s property, which is referred to above as the distributor’s “income stream.”
