State Statutory Standards

Some states have laws or regulations which specifically regulate or prohibit earnings claims made by certain direct selling companies. In particular, Georgia, Louisiana, Maryland, Massachusetts and Wyoming have statutes which prohibit companies from making false representations about potential earnings. The five states that regulate income claims address those who sell a business opportunity, represent a multilevel marketing company, or both. (A direct selling company may not all qualify as a “business opportunity” or “multilevel” company as the terms are variously defined in the state statutes and regulations.)

The state of Georgia requires sellers to document all data related to any statements of income or earning potential (GA Code §10-1-414). In Louisiana, the seller must also disclose that data to any prospective purchaser at the time of the representation. Regarding written statements or advertisements, a seller in Louisiana must state the following:

No assurance of earnings or ranges of earnings can be made. The number of purchasers who have earned more through this business than they invested is at least ______. This is ______ percent of the total number of purchasers. This information is current as of (date).

(LA RS 51:1823). Maryland restricts all earnings claims unless they both represent a “substantial number” of participants in that region and “accurately reflect the average earnings” of sellers in circumstances similar to the participant or prospective participant. (MD Code Ann. §14-303).

In both Massachusetts and Wyoming, multilevel distribution companies are restricted both from claims that participants will earn a certain amount and from revealing past participant earnings; company descriptions do not, by themselves, constitute earnings claims. Additionally, both states restrict statements that recruits are “easy to secure or retain” or that “all or substantially all participants will succeed” (MA Gen. Laws §93-69; WY Stat. §40-3-107).

Summary

The legal and self-regulatory framework described above cautions against misleading earnings claims. Companies that use statements about potential earnings of new recruits must take steps to assure that the statements used to market the earning opportunity are truthful and do not have the tendency to mislead. Specifically, the earnings claims should be reliable, objectively reasonable under the circumstances, provided at the time the recruit is solicited to join the organization. Although it may be possible to avoid misleading the public by disclosing earnings other than as “averages,” this is the measurement upon which the FTC usually relies, and will be the standard by which the DSA Code of Ethics will generally be enforced. In those states where there is specific statutory or case law, those standards will provide direction and guidance.