With the rise in demand for nontraditional employment and the ease with which today’s direct selling consultants can grow their businesses through social media, companies are increasingly likely to face a question that poses both legal and operational challenges: should distributors be allowed to operate businesses with multiple direct selling companies at once?
For years, many companies have been challenged to manage distributors who maintain downlines with multiple direct selling companies simultaneously. Regardless of whether or not those distributors operate businesses that offer similar, competing product lines, companies could face challenges such as brand dilution, confusion of product offerings or questions of distributor loyalty.
“We currently allow our consultants the opportunity to sign on with other direct sales companies until they reach ‘Director’ status or above, at which time we strongly discourage it.” said Karen Eschebach, Co-Founder of Clever Container. “Our train of thought is that they cannot do either company—or themselves—justice if they are trying to run multiple businesses at a management level. Prior to directorship, however, we believe our organizing products fit nicely with any other company which sells mixes, supplements, candles, housewares and so forth since we have products that can organize everyone—and even their businesses! For example, at a vendor fair, if someone is interested in food mixes, our consultant can show them a pantry product to organize the food mixes.”
One of the major challenges companies face when allowing distributors to operate multiple direct selling businesses stems from the temptation to co-brand. Whether distributors look to market different product lines via the same Twitter account or Facebook page, or they simply reference multiple companies in their email signature or promotional materials, such actions can result in brand confusion and dilute each of the respective companies’ messages.
“We prefer that our distributors market each company separately in email distribution, marketing materials and social media,” Karen said. “We have not noticed any abuse of our guidelines in the field and we believe our consultants are actually relieved that we have [guidelines] in place upfront.”
While Clever Container has enjoyed great success in offering clear-cut guidelines for distributors looking to operate multiple direct selling businesses, other companies have faced a fair share of challenges in ensuring distributors do not neglect one business for another or, worse yet, that they do not proselytize.
Still, many companies have found that allowing distributors the freedom to explore businesses with other direct selling companies positions them for greater opportunities to express creativity, learn the ins and outs of the industry and garner new ideas on how to grow and maintain each of their businesses.
“Paperly’s consultants are independent business operators, but just as important, they are thriving entrepreneurs,” said Paperly CEO Jay Rudman. “Entrepreneurs, be it Paperly consultants or a more general population, constantly search for creative, legal and ethical ways to grow their businesses. Should Paperly tamp that creativity, existing and potential consultants might find other, more liberating business opportunities.”
In addition to the fact that restrictions on where a distributor can and cannot pursue new business opportunities could pose challenges for companies looking to attract new recruits, such restrictions could also pose legal concerns by blurring the lines between “independent contractor” and “employee.”
As noted in the “IRS 20-Factor Test: Independent Contractor or Employee, “if a worker performs services for a number of unrelated persons at the same time, they are usually independent contractors.” However, the amount of control a company has over its salesforce may impact whether members of the salesforce are classified as independent contractors.
“Direct selling companies need to be careful not to instruct the salesforce about when, where, and how to do their work,” said Valerie Hayes, DSA Senior Director of Global Regulatory Affairs. “The more detailed instructions or limitations a company places on its salesforce, the more likely members of the salesforce are to be deemed employees rather than independent contractors.
“It is important for companies to have written policies and procedures documenting each of the factors in the IRS’s test. When determining whether a person is an independent contractor or an employee, a regulatory body or a court is going to look at the relationship between the parties, the degree of control the company has over the individual’s work and the documentation the company provides regarding that relationship,” Valerie noted.
To that end, companies such as Clever Container and Paperly provide distributors with education and training on how to effectively operate multiple direct selling businesses without threatening the integrity or branding of any company.
“While the number of direct sellers continues to grow, it certainly is beneficial to tap into those who already know how to be successful in the industry,” Jay said. “Therefore, a direct selling company might stymie its own growth if it limits its recruiting to individuals purely outside the industry.
“One benefit of allowing Paperly consultants to sell another direct selling company’s products is it allows for cross-selling of complementary products,” he continued. “For example, Paperly’s personalized phone case might be the perfect cross-sell when a customer is purchasing a personalized purse from another company. Another benefit is Paperly can heighten a consultant’s entrepreneurial drive by removing business barriers, such as ‘You cannot sell for another company.’ By eliminating obstacles, Paperly signals that we will do everything possible to help our consultants be successful business owners.”