Special Clients Only Legal Advisory Written in the first person by Gerry Nehra..
I am opposed to raiding for legal and ethical reasons. My definition of raiding is targeting the existing representatives of a particular direct selling company for solicitation with an income opportunity of another direct selling company.
Assume Company One is a generic description of all of my clients. My advice to all Company One executives is”do not, at the company level, focus recruiting efforts at any one other company.
Always treat your potential base of new recruits as being the entire United States, rather than any specific company™s organization of sales representatives. Further, do not encourage, permit, or even tolerate your representatives focusing their recruiting efforts at any one other company.
All of my clients should know that I am on the public record on this issue, having provided an expert witness report, which is now a public document in the Texas court system. Identifying the participants in that litigation is not important, nor is it the particular purpose of this general piece. My position is stated below. I have made some modifications to generalize the language and avoid specifying any one company.
Non-solicitation provisions appear in most direct selling company independent representative agreements. In my opinion, such provisions are standard in the industry.
Prohibiting the misuse of confidential information is paramount. The misuse most damaging to the company is any use resulting in or contributing to raiding, or specifically targeting the representatives of the company, enticing them to switch allegiance.
Raiding takes many forms. A common and most egregious form involves the use of names and contact information that, but for the Company One association, would not be known to the person misusing the information. Such use of the information is legally actionable misuse, because the contact information belongs to the company, is confidential and propriety to the company, and is shared with its representatives for the sole purpose of the furtherance of the Company One business.
It is important to note that prohibiting a representative from soliciting other representatives does not preclude the representative from participating in a second business. The rule, however, requires that the prospects of the other business consist of all eligible candidates in the United States, except Company One representatives.
Even if the person misusing the information has resigned or been terminated from Company One, the issues of prohibition of raiding and misuse of confidential information remain. In many cases of violation of the non-solicitation rule, the person violating the rule is approaching a person that, but for their previous association with Company One, would not be known to them.
An analysis of the sound business justification of a non-solicitation rule often overlooks an additional individual beneficiary of the rule. In addition to the business justification to the Company, discussed above, each of the Company™s existing representatives is an individual beneficiary. An explanation follows: A sponsors B and X sponsors Y. The reason A and X introduce B and Y to the Company One business model is to ultimately make more money than is available just through their own efforts.
The compensation plans of virtually all direct selling companies that permit sponsoring is quite simple. Page one of the compensation plan tells A and X how much money they will make by selling the products and services of the company to customers. Page two of the compensation plan provides the incentive for A and X to find more people like themselves (B and Y), by explaining to A and X the additional compensation they will earn, and earn on a continuing basis, when the persons they sponsor (B and Y) sell the products and services of the company to customers.
Now view the non-solicitation rule in this fashion, as a conversation between the company and its representatives, who have not yet sponsored anybody (A and X).
Company One says to A and X, Page two of the compensation plan is the financial incentive for you to go out and find more people like yourselves (B and Y) to introduce to Company One. When B and Y bring business to Company One, you will be financially rewarded. Please note, however, that if you do sponsor, there is nothing the company can do to protect you from the possibility that your next door neighbor will go to your sponsored person and encourage them to join Amway or Avon or Mary Kay, either in place of working the Company One program or in addition to working the Company One program. What we (Company One) can do, and have done, is to restrict all Company One representatives from offering other income opportunities to those you have sponsored.
With this explanation, it becomes clear that when X or Y or any Company One representative approaches B with a third party income opportunity, the beneficiary of the contract provision restricting such conduct is A. And properly viewed in this light, the global beneficiaries of the non-solicitation rule are every Company One representative who chooses to sponsor another representative.
It makes more attractive the incentive to sponsor, knowing that at least no other Company One representative will be approaching that person about a third party™s opportunity.
The Direct Selling Association speaks to this issue in their Code of
DSA Anti-Proselyting Guidelines
Proselyting is the term of art used in direct selling to describe the attempt to convert one or more salesforce members from one company to another. The ethics and legality of efforts to attract salespeople from one company to another is a subject of frequent and intense discussion by industry members. The Direct Selling Association has adopted guidelines regarding these practices of which salespeople and companies should be aware. The guidelines and open letter set out below attempt to describe what the Association believes is the state of the law regarding such practices as well as acceptable direct selling business practice in this regard.
Anti-Proselyting Guidelines of the Direct Selling Association
It is considered to be an improper practice when Company A, or its representatives, specifically and consciously targets the salesforce of Company B with the intent of persuading Company B™s salespersons or employees not only to sell or work for Company A, but also to cease selling or working for Company B, thereby interfering with Company B™s business or contractual relations. This is not intended to encompass the occasional incident or two, but it does apply to situations involving more than several persons, where the pattern, approach and timing of Company A would clearly indicate an intention to adversely impact on Company B.
On Open Letter to Direct Sellers from DSA President and CEO, Neil Offen
Occasionally, direct sellers in the field will be approached by other companies or their sales leaders with solicitations to join those companies. Sometimes, these solicitors present misinformation and denigrate the company you are with. Those solicitations can be inappropriate, unethical, misrepresentative, or even illegal and may be at odds with the Anti-Proselyting Guidelines of the Direct Selling Association (DSA). Under those guidelines, it is considered unethical behavior throughout the industry for one company to target the salesforce of another company in an attempt to lure salespeople into their own organization and stop selling for their original company.
It is unfortunate when such behavior reflects poorly upon the direct selling industry and results in misinformation about our business being spread throughout our salesforces and the public. That is why we urge current direct sellers, or anyone who might be interested in a direct selling opportunity, to evaluate those opportunities on the basis of facts about the company doing the recruiting. Rumor or innuendo about other opportunities often prove to be just plain wrong. So when you™re recruited, examine the appeal of the products offered, the attractiveness of the earning potential, and a company™s commitment to the ideals and obligations embodied in the DSA Code of Ethics. Those are the factors most important to you in evaluating your current company or any future opportunity you may pursue.
All members of DSA are bound by our Code of Ethics and should follow our Anti-Proselyting Guidelines, which constitute our industry™s ethical standard. To review our Code, please visit our website at www.dsa.org. We wish you strength, success, and growth in your direct selling career.
Neil H. Offen
Rick Waak and I are available to discuss this issue as it specifically relates to any one company.
Nehra & Waak, Attorneys at Law
Gerry Nehra 231-755-3800
Rick Waak 269-623-6222