MLMIA Legal Mentoring Bulletin Five
As was mentioned in Legal Bulletin Three, the term “buy-back” has a very specific meaning to direct selling companies and should not be confused with, or used interchangeably with, satisfaction guarantee or right to cancel. The two most evident distinguishing characteristics of a buy-back provision are its applicability ONLY to resigning or terminating distributors and its applicability to new, unused, and currently resalable goods. As the application of the provision is limited to resigning or terminating distributors, the scope is significantly narrowed to “exception” situations, rather than “everyday occurrences.” And, as the provision is limited to new, unused, and currently resalable goods, the narrowed scope eliminates the “try it, and return it if you do not like it” concepts of most satisfaction guarantees.
The purpose of a buy-back policy is to discourage product loading and protect the novice distributor. A buy-back provision is a legal necessity or a “safe harbor” in Georgia, Idaho, Louisiana, Maryland, Massachusetts, Montana, Nebraska, Oklahoma, Puerto Rico, South Dakota, Texas, Washington, and Wyoming, with varying time limits, from ninety days, to one year, to unlimited. The applicability to more than just products, such as services, sales aids, and fees vary from jurisdiction to jurisdiction. The United States Direct Selling Association has made a liberal, and nation-wide, and one-year, buy-back provision a requirement for company membership.
It is beyond the scope of this Legal Mentoring Bulletin to detail every aspect of the buy-back requirements in the above named 12 jurisdictions. Distributors are on notice that an independent contractor agreement silent on the subject of buy-back is lacking a clause that is legally required in a large portion of the USA. Companies are on notice that Direct Selling skilled Counsel are available to advise them on these buy-back legal requirements, and the choices they have, and to draft for them the language needed for compliance.
The above is provided as general information and, although written by MLMIA Board Member and Direct Selling Specialist Attorney Gerald Nehra, is NOT provided as the rendering of legal advice. Readers are urged to seek the counsel of attorneys or firms with special knowledge of direct selling laws. The four firms that devote their practice exclusively to counseling corporations about direct selling legal issues are, in alphabetical order: Babener & Associates, Jeffrey A. Babener, 503-226-6600, [email protected]; Grimes & Reese, PLLC, Kevin D. Grimes and Spencer Reese, 208-522-2600, [email protected]; Nehra & Waak, Attorneys at Law, Gerald Nehra and Richard Waak, 231-755-3800, [email protected]; and D. Jack Smith Law Firm, D. Jack Smith, 901-292-5225, [email protected].