Background - What is MLM?
There are many many business models, especially over the internet, which invite participants to get on board and, say, "work from home" selling or distributing anything from cleaning goods down to "credits" to play games offered via website.
MLM is where the promoters of the business offer the enticement of compensation for participants who go to the effort of setting up distribution networks with their friends / colleagues / other contacts, and offer payment of commissions to those participants based upon sales made by their distributors, or their distributors' distributors, and so on.
The network of people participants arrange to "join up" beneath them, called their "downline", can be arranged ideally in a binary structure so that, for example, if each person introduced also joined up two more people, and then they did the same, the number in the downline can increase exponentially in a fairly short period of time, and if commissions are payable on each sale of product by the downline members (on the assumption that such sales are made), the commissions can be quite significant.
The "dodgy" versions of MLM are configured so that they only work by taking money paid by new participants and paying other participants what they are "owed" in commissions, ultimately leading to the financial collapse of the structure and quite often, eventually, the line of people most recently joined up stand to lose a significant amount of money.
However, many MLM structures are not configured that way at all and don't have to rob Peter to pay Paul, and everyone in the structure can benefit.
Is MLM Legal?
The question of whether or not these arrangements are legal differs from country to country as the laws about MLM subtly differ from country to country. In Australia, the answer lies largely in the motivation for entry, objectively considered.
MLM compensation plans are not in themselves illegal - what is important legally in Australia is what induces new participants to part with their money to be entitled to be a part of the compensation plan.
The relevant legislation can be convoluted and difficult to follow, and some of the Court decisions in relation to this area of law seem a little inconsistent at times.
How Can LegalIT Help?
Our lawyers have many years' experience in advising businesses and individuals in relation to MLM rules including advising of the validity of (and defending in Court) particular compensation plans, advising organisations and individuals of their rights and obligations under the relevant laws.
Whether you are a current or proposed business, promoter or operator of or participant in an MLM compensation plan, we can assist you in relation to any legal queries you may have.
If the worst occurs and you find yourself in a dispute with the ACCC over a compensation plan you have been involved in, we can also assist you to resolve that dispute.