MLMLegal.com’s most requested FAQ this month answered in a video by MLM expert Attorney, Jeff Babener: How Many Level Deep (in the compensation plan) is it Legal to Go?
The issue of depth of levels seemed to be a major focus prior to the internet and other non-postal (mail) means of communication. In the late 1980’s, the U.S. Postal service examined the numbers of compensation plan levels to make a determination, whether or not, in its opinion, the depth of levels created a “lottery” element under U.S. Postal lottery laws, that forbid payment based on chance.
Various cases and consents sorted out a safe harbor (at least from the U.S. Postal Office standpoint) for at least four levels (not necessarily agreed to by the direct selling industry). Separately, the Postal Service looked for evidence of “supervisory requirements.” Most companies adopted specific supervisory requirements of sponsors to demonstrate some managerial activity by distributors.
For the past 25 years, little recruitment activity is conducted by U.S. mail and it has been a long time since the U.S. Postal Service has expressed a serious interest in this subject. The issue of levels in a company’s compensation plan has not been the focus of the FTC or state attorneys general in the enforcement of pyramid laws. Instead, the focus for the last two decades has been on the whether or not product/service is purchased in reasonable amounts, the presence of anti-inventory loading and “buyback” rules and an emphasis of sale of product/service to the “ultimate user” as opposed to an emphasis on mere recruitment of new distributors whose primary motivation to make payments or purchases is to qualify in the income opportunity.
Watch the video for a detailed explanation by Jeff Babener, Editor of MLMLegal.com. View all of our new videos and more on our new and improved website: MLMLegal.com!
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