Competition Act - Pyramid Selling and Multi-Level Marketing Schemes

To Whom Does This Apply?

Summary

What is the Competition Act?

The Competition Act is a federal law governing most business conduct in Canada. It contains both criminal and civil provisions aimed at preventing anti-competitive practices in the marketplace.

Multi-level Marketing Plans and Schemes of Pyramid Selling

The Competition Act explains the differences between multi-level marketing plans and schemes of pyramid selling, and sets out the responsibilities for operators and participants in these types of plans. Multi-level marketing, when it operates within the limits set by the Competition Act, is a legal business activity, while a scheme of pyramid selling is illegal as defined by the law.

What is Multi-level Marketing?

Multi-level marketing is a plan for the distribution of products whereby participants earn money by supplying products to other participants in the same plan. They, in turn, make their money by supplying the same products to other participants.

What Should I Look Out For?

Although multi-level marketing plans, as defined in the Competition Act, are a legal business activity, there are certain things you should be aware of before joining such a plan.

It is illegal for operators or participants in a multi-level marketing plan to make representations relating to compensation or earnings under the plan unless they include the amount of compensation actually or likely to be received by a typical participant of the plan. Such representations can mislead potential recruits to believe that it will be easy to make large amounts of money.

As well, operators of, and participants in, a multi-level marketing plan should ensure that any representations made about the plan are - or include information that is - fair, reasonable and timely as the plan relates to:

• the different levels of earnings or compensation received by participants in the plan;
• the amount of money earned by a typical participant; and
• the time and effort required to reach specific levels of income.

What is a Scheme of Pyramid Selling?

A scheme of pyramid selling is a multi-level marketing plan that incorporates any one of a number of specified marketing practices that make it a criminal offence under the Competition Act.

It is illegal if:

• participants pay money for the right to receive compensation for recruiting new participants;
• a participant is required to buy a specific quantity of products, other than at cost price for the purpose of advertising, before the participant is allowed to join the plan or advance within the plan;
• participants are knowingly sold commercially unreasonable quantities of the product or products (this practice is called inventory loading); or
• participants are not allowed to return products on reasonable commercial terms.

For a copy of the pamphlet Multi-level Marketing and Pyramid Selling visit the Web site.

DISCLAIMER
Information contained in this section is of a general nature only and is not intended to constitute advice for any specific fact situation. For particular questions, the users are invited to contact their lawyer. For additional information, see contact(s) listed below.

Saskatchewan Contact(s):
See National Contact.