Yi Fan Jin Enterprise Co., Ltd. was complained for engaging in multi-level sales
Case:
Yi Fan Jin Enterprise Co., Ltd. was complained for engaging in multi-level sales
Key Words:
multi-level sales, Long-term Customer Benefit Contract
Reference:
Fair Trade Commission Decision of November 20, 2003 (the 628th Commissioners’ Meeting)
Industry:
Other Organizations Not Classified Elsewhere (9499)
Relevant Law:
Article 8(1) of the Fair Trade Law
Summary:
1. The Fair Trade Commission received a letter of complaint from a Mr. Gao, stating roughly that Yi Fan Jin Enterprise Co., Ltd. (Yi Fan Jin) induced unspecified members of the public to pay NT$150,000 and engaged in multi-level sales under the guise of selling rice.
2. It was found that Yi Fan Jin sold its “Long-term Customer Benefit Contract” at a price of NT$150,000, with an age limitation for buyers from 15 to 65 years of age. Under that contract, purchasers were provided with a lifetime supply (issued monthly) of long-grain Thai rice. In addition, Yi Fan Jin purchased group insurance with Hontai Life Insurance Co., Ltd. using the names of the contract purchasers as the insured. If the contract purchaser died after three years following purchase of the insurance, Hontai would pay a settlement of NT$400,000 to Yi Fan Jin, and Yi Fan Jin, in turn, would not only return the original NT$150,000 contract price and pay a funeral donation of NT$50,000 to the purchasers family, but also provide funeral services for the deceased.
3. It was found that Yi Fan Jin’s marketing method employs sales representatives to promote and sell its “Long-term Customer Benefit Contract.” Not only are the majority of these representatives purchasers of the “Long-term Customer Benefit Contract,” they also collect performance bonuses, guidance bonuses, corresponding level bonuses, and cash bonuses, based on the number of pre-arranged funeral contracts sold by themselves or by their downstream representatives in the organization. These representatives can also be promoted to positions such as officer, assistant manager, manager, general director or executive director. These sales organization and bonus calculation methods are suspiciously similar to the hierarchy, planning, and bonus calculation systems used by multi-level sales organizations. On the other hand, the promotional staff hired by Yi Fan Jin were required to fill out an application to verify their qualifications and were also required to either have two other promotions officers at the company to act as guarantors or purchase good-faith insurance out of their own pocket, all of which had to be approved by the company. Purchasers of the “Long-term Customer Benefit Contract” did not necessarily obtain the right to promote and sell products or services or introduce others to participate. Before obtaining that right, those wishing to become promotional officers for Yi Fan Jin were required to apply according to the company regulations described above. Their relationship with the company should be considered an internal employer-employee relationship as the promotional staffs are required to punch a timecard at a specified workplace and attend morning meetings. Therefore, in theory there is an administrative relationship between positions where one gives a direction and another follows that direction, which differs from a multi-level sales operation where participants have an obligation of loyalty to the company and which employ sales methods where each participant is an independently operating business entity. Based upon the evidence currently available, it is difficult to conclude that Yi Fan Jin engaged in multi-level sales, and therefore the regulations of the Fair Trade Law regarding multi-level sales do not apply.
Appendix:
Yi Fan Jin Enterprise Co., Ltd.’s Uniform Invoice Number: 80234276
Summarized by Wang, Horng-Shiuan; Supervised by Lin, Ching-Tarng