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  1. #1

    Are MLM Reps really Independent Contractors ?

    The following is the definitions the IRS gives to employees and independent contractors.

    Independent Contractor – The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result. Essentially independent contractors are considered to be in business for themselves. They take care of their own tax obligations and benefits.

    Employee – Anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.

    As an example:

    Which of these workers qualifies as an independent contractor?

    a) A newspaper carrier paid for each copy delivered
    b) A knife salesman who works on commission, rents his own office, and pays his own staff
    c) A consultant who works part time for a marketing firm”

    Even though it would seem all would be ICs ONLY ( c) is correct as determined in court rulings.
    My topic for discussion is are MLM reps really ICs if the MLM company dictate the terms. For example if they have an exclusivity agreement and create the incentive plans, including PSV, aren’t they in effect “controlling the details of how the services are performed”?


  2. #2
    Yawn...'s Avatar
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    Re: Are MLM Reps really Independent Contractors ?

    Quote Originally Posted by noagenda View Post
    The following is the definitions the IRS gives to employees and independent contractors.

    Independent Contractor – The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result. Essentially independent contractors are considered to be in business for themselves. They take care of their own tax obligations and benefits.

    Employee – Anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.

    As an example:

    Which of these workers qualifies as an independent contractor?

    a) A newspaper carrier paid for each copy delivered
    b) A knife salesman who works on commission, rents his own office, and pays his own staff
    c) A consultant who works part time for a marketing firm”

    Even though it would seem all would be ICs ONLY ( c) is correct as determined in court rulings.
    My topic for discussion is are MLM reps really ICs if the MLM company dictate the terms. For example if they have an exclusivity agreement and create the incentive plans, including PSV, aren’t they in effect “controlling the details of how the services are performed”?

    if they have an exclusivity agreement and create the incentive plans, including PSV, aren’t they in effect “controlling the details of how the services are performed”?
    Exclusive agreements (contracts) can control how parties perform services. But this does not necessarily met the test.

    Incentives in contracts are very common. For example, if you do X you get Y. If you do X+1 you get Y+1.

    PSV - I don't know what that is.

  3. #3
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    Re: Are MLM Reps really Independent Contractors ?

    IRS says -

    IRS Publication 15-A, Employer’s Supplemental Tax Guide, states that direct sellers are in the category of statutory non-employees and are treated as self-employed for all federal tax purposes, including income and employment taxes, if:
    substantially all payments for their services as direct sellers are directly related to sales or other output, rather than to the number of hours worked, and
    Their services are performed under a written contract providing that they will not be treated as employees for federal tax purposes.

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  4. #4

    Re: Are MLM Reps really Independent Contractors ?

    Quote Originally Posted by Yawn... View Post
    Exclusive agreements (contracts) can control how parties perform services. But this does not necessarily met the test.

    Incentives in contracts are very common. For example, if you do X you get Y. If you do X+1 you get Y+1.

    PSV - I don't know what that is.
    PSV - Personal Sales Volume

    Exclusivity - In the instance an MLM can terminate the relationship if the rep works with other MLMs

    A good link to read:
    http://apps.americanbar.org/buslaw/b...-06/wood.shtml
    An interesting paragraph from it:

    “The IRS has its own test for determining worker status. The IRS uses a 20-factor test. The factors include training and instructions given a worker, use of assistants, continuing relationship, set hours of work and on a full-time basis, where the work takes place, method of compensation for work performed and reimbursement of expenses, exclusivity of the working relationship, and the right to discharge and terminate the relationship. Other important factors are whether the worker is provided with tools and materials, makes a significant investment, and has a potential to realize a profit or suffer a loss.”

  5. #5
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    Re: Are MLM Reps really Independent Contractors ?

    First of all, a link from the IRS outranks any other link when discussing the IRS's viewpoint. That said, what you supply all supports "independent contractor" status. While some MLMs have exclusivity with regard competitors, that's not exclusitivity, in fact the vast majority will have full-time jobs as well, at least initially. Compensation is also commission based, not hourly or project based, there's little in the way of tools and materials supplied, investment (though not significant) is needed, and there is the potential to realize a profit or suffer a loss.

    Really, this is a discussion that was had decades ago. There's been more than a few direct sellers been in the line of fire from the IRS over the years, their status has independent contractors is not under dispute.

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  6. #6

    Re: Are MLM Reps really Independent Contractors ?

    Quote Originally Posted by IBOFightBack View Post
    First of all, a link from the IRS outranks any other link when discussing the IRS's viewpoint. That said, what you supply all supports "independent contractor" status. While some MLMs have exclusivity with regard competitors, that's not exclusitivity, in fact the vast majority will have full-time jobs as well, at least initially. Compensation is also commission based, not hourly or project based, there's little in the way of tools and materials supplied, investment (though not significant) is needed, and there is the potential to realize a profit or suffer a loss.

    Really, this is a discussion that was had decades ago. There's been more than a few direct sellers been in the line of fire from the IRS over the years, their status has independent contractors is not under dispute.
    I'm not really arguing the validity of IC status as the IRS defines direct sellers. More to the constraints SOME MLMs put their reps in. My understanding some companies will terminate the agreement if they simply work multiple MLMs (non-competitors) or some limit your participation in the comp plan with a minimum PSV. My issue for discussion (not etched in stone) do some MLMs create an environment where they control how the services are performed, what you can and cannot represent and can they jeopardize the IC/company relationship and subject themselves to potential IRS scrutiny.

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    Re: Are MLM Reps really Independent Contractors ?

    Quote Originally Posted by noagenda View Post
    The following is the definitions the IRS gives to employees and independent contractors.

    Independent Contractor – The general rule is that an individual is an independent contractor if you, the person for whom the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result. Essentially independent contractors are considered to be in business for themselves. They take care of their own tax obligations and benefits.

    Employee – Anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.

    As an example:

    Which of these workers qualifies as an independent contractor?

    a) A newspaper carrier paid for each copy delivered
    b) A knife salesman who works on commission, rents his own office, and pays his own staff
    c) A consultant who works part time for a marketing firm”

    Even though it would seem all would be ICs ONLY ( c) is correct as determined in court rulings.
    My topic for discussion is are MLM reps really ICs if the MLM company dictate the terms. For example if they have an exclusivity agreement and create the incentive plans, including PSV, aren’t they in effect “controlling the details of how the services are performed”?

    Yes, they are.

    Here's a link from attorney David Eisenstein on the subject.

    Click Here!
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    Re: Are MLM Reps really Independent Contractors ?

    Quote Originally Posted by noagenda View Post
    I'm not really arguing the validity of IC status as the IRS defines direct sellers. More to the constraints SOME MLMs put their reps in. My understanding some companies will terminate the agreement if they simply work multiple MLMs (non-competitors) or some limit your participation in the comp plan with a minimum PSV. My issue for discussion (not etched in stone) do some MLMs create an environment where they control how the services are performed, what you can and cannot represent and can they jeopardize the IC/company relationship and subject themselves to potential IRS scrutiny.
    None of those types of contractual issues come even remotely close to putting anyone under IRS scrutiny as an independent contractor.

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  9. #9

    Re: Are MLM Reps really Independent Contractors ?

    Quote Originally Posted by IBOFightBack View Post
    None of those types of contractual issues come even remotely close to putting anyone under IRS scrutiny as an independent contractor.
    I would disagree as I think some companies like Mary Kaye have policies about working other MLM programs, cross recruitment and even restrict family members from participating in other MLMs. The question would be the enforceability of the contract as the provision could violate anti-trust laws. It could certainly be argued that it violates the IC status of the rep.

  10. #10
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    Re: Are MLM Reps really Independent Contractors ?

    I would disagree as I think some companies like Mary Kaye have policies about working other MLM programs, cross recruitment and even restrict family members from participating in other MLMs. The question would be the enforceability of the contract as the provision could violate anti-trust laws.
    Nope, contractual no-compete clauses generally do not threaten competition

    It could certainly be argued that it violates the IC status of the rep.
    No, you're casting a ridiculously wide net. The IRS says -

    You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.

    While there are guidelines and some restrictions, MLM companies do not control "what will be done or how it will be done" and do not "control the details of how the services are performed".

    Again, this is not something in dispute, it is well established that MLM-style direct sellers are independent contractors.

    New to scam.com? This is what you can expect from MLM critics in support of their claims ....


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  11. #11

    Re: Are MLM Reps really Independent Contractors ?

    Quote Originally Posted by IBOFightBack View Post
    Nope, contractual no-compete clauses generally do not threaten competition



    No, you're casting a ridiculously wide net. The IRS says -

    You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.

    While there are guidelines and some restrictions, MLM companies do not control "what will be done or how it will be done" and do not "control the details of how the services are performed".

    Again, this is not something in dispute, it is well established that MLM-style direct sellers are independent contractors.
    Its important that you and I are on the same page of this argument/discussion:

    1) I am not arguing the IRS position on Direct Sales being an independent contractor
    2) I am not arguing no-compete clauses do not violate anti-trust laws.

    What I am arguing are when companies will not allow a rep or a family member to join or recruit into non-competing organizations they are in effect denying the individual's right to work and earn a living. So here is my question: If I join Amway and also wish to join ACN are they "competing" MLMs ? If not I think they are dictating how I run my business and create a restraint in trade situation or in effect an employer/employee relationship
    Last edited by noagenda; 11-15-2012 at 06:51 PM.

  12. #12
    Yawn...'s Avatar
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    Re: Are MLM Reps really Independent Contractors ?

    Quote Originally Posted by noagenda View Post
    Its important that you and I are on the same page of this argument/discussion:
    ....
    ...they are in effect denying the individual's right to work and earn a living...
    No, it is not a 'right to work' issue, rather a contract issue. You can void the contract, typically.

    ...they are dictating how I run my business...
    To an extent, yes - but if the contract is legal, fair and reasonable - there is no problem. For example: Ford and GM dictates the terms of distributor agreements.

    ...and create a restraint in trade situation...
    Agency contracts (if this is the type of contract with Amway) often place conditions on the actions of the parties.

    ...effect an employer/employee relationship...
    No, this does not necessarily create an employment relationship, but it could.

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    Re: Are MLM Reps really Independent Contractors ?

    Quote Originally Posted by noagenda View Post
    Its important that you and I are on the same page of this argument/discussion:

    1) I am not arguing the IRS position on Direct Sales being an independent contractor
    2) I am not arguing no-compete clauses do not violate anti-trust laws.
    How is the above and the below not contradictory?

    ... I think they are dictating how I run my business and create a restraint in trade situation or in effect an employer/employee relationship
    If they're creating an employer/employee relationship, then they're not independent contractors

    If they're creating a restraint of trade situation then it's potentially anti-trust.

    Again though, in both cases this has been well established and you are simply incorrect. Contractual restrictions do not create restraint of trade or employer/employee relationships.

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  14. #14

    Re: Are MLM Reps really Independent Contractors ?

    Quote Originally Posted by IBOFightBack View Post
    How is the above and the below not contradictory?



    If they're creating an employer/employee relationship, then they're not independent contractors

    If they're creating a restraint of trade situation then it's potentially anti-trust.

    Again though, in both cases this has been well established and you are simply incorrect. Contractual restrictions do not create restraint of trade or employer/employee relationships.
    Lets see if we can clarify. Amway and Mary Kaye could be considered "competitors". I UNDERSTAND that the no-compete clause makes sense and is perfectly legal when you are protecting the interest of the company and going to a COMPETITOR could damage the company. Amway and ACN are in 2 different industries. The only similarity is they are both MLM. SOME companies do not allow you to develop multiple income streams by being in more than one MLM whether they are direct competitors or not. They can't tell me where I can work if it is non-MLM but they can dictate where I can work if it is MLM. They are therefore "dictating how I run my business and create a restraint in trade situation". This would not occur in a non-MLM environment. I have been a consultant and a manufacturer's representative where I have signed multiple independent agreements. As long as I was not representing a competing interest I am free to do business with whomever I want. The companies I worked with could not dictate those terms. MLM should play by the same rules or are you saying that simply being in MLM all other companies in MLM are by definition your competition.
    Last edited by noagenda; 11-15-2012 at 11:23 PM.

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    Re: Are MLM Reps really Independent Contractors ?

    Quick answer to the thread title: YES.
    "People are not interested in your product or your business; they are interested in solving their own problems." -- James Dillehay, Entrepreneur and Author

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    Re: Are MLM Reps really Independent Contractors ?

    Quote Originally Posted by noagenda View Post
    Lets see if we can clarify. Amway and Mary Kaye could be considered "competitors". I UNDERSTAND that the no-compete clause makes sense and is perfectly legal when you are protecting the interest of the company and going to a COMPETITOR could damage the company. Amway and ACN are in 2 different industries.
    Companies like Amway and ACN are direct competitors in the "business opportunity" industry.

    In general MLM companies aren't concerned about the no-compete for smaller distributorships. It's when people are qualifying for higher levels that it becomes an issue, and in particular for private seminars where trade secrets may be revealed/discussed.

    Note that some countries agree with you and no-compete's like this aren't allowed. That causes it's own problems, of course. For example a few years ago a high achiever in Amway Australia was not invited to the yearly leadership conference (in a luxury resort), as he was working with a competitor as well. He sued, considering it a "benefit" he had qualified for. The court sided with Amway.

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