Violation of the Fair Trade Law and the Regulation Governing Multi-level Sales by Giraffe International Co., Ltd.
Chinese Taipei
Case:
Violation of the Fair Trade Law and the Regulation Governing Multi-level Sales by Giraffe International Co., Ltd.
Key words:
improper multi-level sales, termination of membership, withholding payable gains, ranks
Reference:
Fair Trade Commission Decision of 27 May 1998 (the 342nd Commission Meeting); Disposition (87) Kung Ch'u Tzu No. 122
Industry:
Retail Sales Industry (4020)
Relevant Laws:
Articles 24, 23(2), 41, 42 of the Fair Trade Law; Article 7(1)(iv) of the Regulations Governing Multi-level Sales
Summary:
Giraffe International Co., Ltd. [the respondent] awarded "GRM Super Star" rank to Pao Chu Company [PCC] on 1 January 1996, the day PCC joined the respondent's multi-level organization. According to the bonus system that the respondent reported to the Fair Trade Commission, participants who wished to obtain GRM Super Star rank had to cultivate nine GRM independent descendant lines. (The term "independent descendant lines" refers to lines of sales within the respondent's multi-level plan that are independent of each other, i.e. direct descendant participants of the first generation under the participant.) However, according to PCC's first generation organization as reported by the respondent, there was only one GRM-ranked participant, one GRA-ranked participant, and five GL-ranked participants. PCC was only qualified as a GRA member. PCC obtaining GRM Super Star rank obviously did not conform to the respondent's bonus system.
Furthermore, according to the respondent's bonus system and explanation, those GRM-ranked participants whose descendant participants were eligible for bonus for the current month may collect a bonus for training the descendant participants and may be entitled to share a special bonus under the "3% leadership bonus" plan. Nonetheless, under the above system, PCC held only GRA rank and was not supposed to collect the training or leadership bonuses. The respondent, however, improperly distributed these bonuses to PCC. In the long run, such bonus distribution would affect the multi-level sales enterprise's normal operation. In conclusion, the respondent's act of granting PCC the GRM Super Star rank materially impaired the fairness of the bonus system, misappropriated the participants' bonus distribution, affected the multi-level sales enterprise's normal operation, and was deceptive and obviously unfair so as to adversely affect trading order in violation of the provisions of Article 24 of the Fair Trade Law (the Law).
Article 7(1)(iv) of the Regulations Governing Mulit-level Sales (the Regulations) provides that a multi-level sales enterprise shall not withhold gains payable to a participant upon the participant's withdrawal from the enterprise. According to the information reported and statements made by the respondent, the sales period was calculated from the 16th day of the current month through the 15th day of the next. Because goods might still be returned within one month following the close of the sales period, bonuses were not distributed until the 25th of the next month [40 days after the close of the sales period]. A participant who lost membership before the bonus distribution would not be eligible to collect bonuses from the preceding sales period. Whether membership was terminated due to voluntary cancellation or termination of the contract, or revoked by the respondent, the participant's sales production was a result of his/her efforts. The participant had the right to remuneration, such as the commission and bonuses, regardless of the termination of membership. Though the respondent maintained that there would be goods returned, it should not withhold the participants' gains in advance for potential goods returns and thereby hinder the participant's exercise of the right to remuneration. The respondent's actions in refusing to distribute the commissions and bonuses payable to participants after withdrawal from the enterprise clearly violated the provisions of Article 7(1)(iv) of the Regulations.
In conclusion, the respondent violated Article 24 of the Law and Article 7(1)(iv) of the Regulations. This Commission's 342nd meeting resolved that the respondent should, in accordance with Article 41 of the Law, be ordered to stop improperly distributing excessive bonuses to PCC. The respondent's withholding of bonuses payable to participants after the participants had withdrawn from the enterprise were found to have violated Article 7(1)(iv) of the Regulations, and the respondent was fined NT$500,000 in accordance with Article 42 of the Law.
Summarized by Lin, Ch'un-hui
Supervised by Yang, Chia-chun
Note:
"GRM Super Star" is the title of the highest rank of participants in the
respondent's sales organization.
Appendix:
Giraffe International Co., Ltd.’s Uniform Invoice No.:
84751737