Raiding and Solicitation in Direct Sales
One does not have to be involved in this industry long before he or she witnesses one team of distributors leaving for another new and allegedly better opportunity. It has happened for decades and will happen for decades into the future. As an attorney whose focus over the last 30 years has been litigation, the enforcement of non-competition clauses and non-solicitation agreements is nothing new. In traditional business, it is the source of suits for injunctive relief and temporary if not permanent restraining orders-all part of being in the shooting gallery. In the highly emotion-driven context of network marketing, litigation surrounding the enforcement of non-competition clauses or non-solicitation agreements is more than just an ordinary event in the day to day war of competitive businesses. In network marketing it can be an enormous problem for all involved.

This discussion of non-competition clauses and non solicitation requirements is separate and distinct from the discussion of “crosslining” which will be the topic of another article. “Crosslining” is a concept that is more ethical than legal. It involves taking or attempting to get distributors within your existing company to leave their upline in favor of another line of sponsorship. It is destructive and disruptive and rarely effective in converting an underperforming distributor into a performing distributor. But this article is about raiding and non-solicitation, not “crosslining.”

So how do you stay out of the crosshairs when a distributor from another company leaves and seeks to join your business or when someone leaves your organization for allegedly greener pastures? Let’s be honest-every week we hear about a distributor who is defecting and leaving one company to go to another. But if the fish is of any size (a “keeper” in angler terms), there will be a cost to be reckoned with at some point and one will have to balance the risks of disruption and litigation with the benefit of the move. Movement outside or on the fringes of the contractual obligations spelled out in the Policies and Procedures is often a gun that kicks as hard as it shoots and may not be worth the trouble. As we say in criminal law circles, “You can avoid the time, but you can’t avoid the ride” (the process of the ensuing litigation or repairing damaged relationships).

First, as a distributor, you should understand where such agreements are typically found and why they are valuable, not just to the corporation but to the distributor base generally. The Policies and Procedures of most network marketing companies typically feature two provisions that are central to this discussion. The first type is a non-competition clause that will often require a person to not engage in another network marketing venture for a period of time that typically ranges from 6 months to 2 (and sometimes as long as 5) years. Often, the prohibition is limited to competitive products but sometimes is broad enough to consume any and all network marketing opportunities. The broader the provision, the less likely it is to be enforced in court. The second type of provision typically precludes the individual leaving one company from talking to others in the downline for a period of time. This is known as a non-solicitation clause. Some non-solicitation provisions prohibit communication with the entire downline while some permit discussion only with those distributors which the departing distributor personally sponsored.

Both the non-competition provisions and the non-solicitation clauses operate in “restraint of trade” and are therefore viewed skeptically by the courts generally. However, if reasonable in duration (length of time of the restriction), geographic scope(does the provision restrict markets to which the distributor’s previous business did not extend) , and marketplace scope(does the provision extend beyond the reasonable marketplace scope to which the distributor previously engaged-nutritional or skin care products versus a completely different industry like prepaid legal services or travel services), courts of most states will enforce the provisions. Either way, as stated above, the cost of the fight will likely serve as a natural deterrent from engaging in such a battle.

Why are these provisions worthy of enforcement? Why not just let people come and go as they please and under the guise of free speech and free trade and capitalism and allow people to speak to anyone and everyone about their new gig? Whether you are the “raider” (the beneficiary of the movement of one group of distributors to your downline) or the “raidee” (the one who lost a large group of distributors to another company), the disruption resulting from the movement of large numbers of distributors harms the marketplace, often irreparably. In one particular case I handled, over a nine year period of litigation, we were by all measures successful. We won a several million dollar judgment (which we never collected in any meaningful way) and bankrupted most of our opponents. The marketplace never recovered and I am confident that both sides would agree that a better solution would have been to solve the problem rather than fight. What we “won” in the courtroom was lost by my clients tenfold in the marketplace. In a separate case, we achieved a seven figure result but over seven years of litigation, I am certain both sides would reflect and conclude they would rather have the residual income from those downlines than be victorious in the courtroom.

My track record is good. I usually win. But if the result is nothing more than a contribution to my kids’ college fund, is the problem one that would have better been solved than litigated? Not so in traditional business but definitely so in the context of network marketing. That is why, as a lawyer, particularly in the context of network marketing, I fashion myself as a problem solver. Once in the courtroom, we will certainly show our teeth (I have been accused of being willing to “spike my own mother as I slide into second base”), but in the context of network marketing, coming up with creative solutions is far better than another notch on the belt in terms of “victories” in court.

So how do you stay out of the crosshairs? First, as a distributor, be proactive! The only way you will have success in keeping your downline from being raided is to have consistent pro-active communication with your group. This process has to be a two way street and you should always seek to add value to the people with whom you are communicating. Two way communication is essential. In both of the litigated situations described above, communication by the ultimate leader was completely lacking, the ultimate leader relying on downline chain of command to keep the fires of the distributor base stoked. YOU MUST HAVE A POSITIVE RELATIONSHIP WITH THE TEAM MEMBERS WHO ARE THE LIFEBLOOD OF YOUR BUSINESS! Be careful that you give particular attention to those who are different than you. You may not enjoy their company as much, but they are just as important to you as the guys you enjoy golfing with and spending time with on vacations. But when the folks who aren’t like you leave, they will take half your business and spread rumors and innuendo about your character as a leader. If you serve someone a great steak he will tell two others about it. You serve someone a crummy steak and he’ll tell 15. As my brother, a retired colonel in the military has said, “It only takes one ‘Oh Shi*” to screw up 100 at-a-boys!” Be cognizant of the folks who you don’t naturally relate to and give them the attention they deserve.

Secondly, you MUST always take the high road publicly. Our’s is an internet world. “What happens in Vegas stays … on Facebook, Twitter, My Space, Linked in…” Wish the departed well and privately re-engage those with whom you have a connection. Handle your conflicts privately, but praise publicly. Understand your rights. The agreements you seek to enforce are valid and enforceable and for the good of the industry generally and all of the distributors specifically. But trashing people on the internet, though therapeutic, is typically self-destructive Even blogging anonymously is a poor solution to addressing your adversary. As an attorney who litigated the anonymity of bloggers in a series of federal and state court cases from Nevada to Georgia to California to Michigan to Texas, I can attest that everyone knows where the blogs came from and, like parents talking ugly about one another in a divorce, no one wins.

If you believe a change of companies is best for you, be sure to balance the disruption with the offers of the new gig. Grazing in greener pastures often is synonymous with eating someone else’s grass. Stability is almost always preferable to relocation. After all, this business is a marriage, not a one night stand. But if you must relocate, respect the non competition and non-solicitation agreements in your contracts. If you are a downline and see your fearless leader go somewhere else, it is appropriate to inquire whether he or she, because of their rank or pin level, got a special deal with the new company that is not available to you. Did your leader get slotted in a favorable position or did he, like you, begin at the bottom of the tree? Corporations are often culprits in raiding and will pay big leaders based on their anticipated production large sums of money and even give special deals outside the provisions of the comp plan. The downline will not likely see the benefits of that. So when your leader talks of the next greatest thing, ask pointedly whether he or she is getting a special deal not available to you or your downline. If he is, at best his credibility is questionable and at worst, he is in line for a long litigious battle that will not serve you or your downline well.

Finally, remember this: If your distributor base is not producing at the level of your expectations or theirs, the chance that a change of scenery will fix things is highly unlikely. If the pay plan is predominantly the same as it was when the decision was made to join the existing gig and the product line is the same or better, changing scenery is not likely the answer.

Be sure to consult legal counsel in the event you are faced with one or more of these issues. This was just a brief and general discussion of the nuances of non-competition and non solicitation agreements and not intended to be a memoranda of legal authority on the subject as every case is distinct.

Mike McCormick, Esq.