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.

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It is very illegal to pay headhunting fees, i.e., paying commissions merely for distributors to recruit other distributors.

We are often asked by executives starting a network marketing company if they can have consultants earn income by referring others and if it’s legal.

Effectively, multilevel marketing is the sale of products through person-to-person, “referral” marketing. It is very illegal to pay headhunting fees, i.e., paying commissions merely for distributors to recruit other distributors. However, if a distributor builds a sales organization and receives override commissions on the sales activity of those in his or her downline, this is the essence of multilevel marketing, and is quite acceptable, assuming all other elements of legitimate direct selling (vs. pyramiding) are in place.

MLMLegal.com has launched the Innovation Campaign for its February 2014 MLM Startup Conference. Read how to get your two free tickets by clicking HERE!

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This blog post is the companion post to the video: Why Do Distributors join MLM Companies? The following is the transcript of MLM Attorney Jeff Babener’s own words:

A common question we get is “why do people join direct selling and network marketing companies?”  Many studies have shown that recruitment is essential to success, particularly studies done by the Direct Selling Association. Many would be surprised at the results. One may think that most people join MLM companies for the money. However, believe it or not, money as motivation ranks as four, five and six on polls.

The polls have showed that the number one reason why people join MLM companies is because they relate to the product. The second reason they join is because they relate to company management; the person who founded the company. The third reason distributors join is because they relate to the company vision. If the company proclaims women’s empowerment or wellness, then distributors will relate to that as well. It is also important that distributors relate to the field leadership and the people that brought them into the company.

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