A worker for Amway, a multi-level marketing company that sells home, health and beauty care products, is suing the company and alleging he and other sellers should be classified and paid as employees, rather than independent contractors.
Our Los Angeles employee misclassification attorneys are watching this case closely because it could impact a host of other similar types of business models, such as LuLaRoe, Young Living, Scentsy, Rodan + Fields, Avon Products, Herbalife and others.
Amway sells products like detergent and mouthwash, promoting itself as a means for sellers to become “small business owners.” They thrive on person-to-person sales. These types of companies have come under fire for reportedly predatory business models that require salespersons to buy several hundred or thousand dollars in products just to get started. In some cases, individuals have drained their savings and retirement accounts. The Federal Trade Commission has issued warnings about these types of pyramid schemes, but the companies remain in business.
Most of these companies refer to their salespersons as independent “participants,” “distributors” or “contractors.” But are they?
Not according to the plaintiff in the latest California employment lawsuit against Amway.
As reported by an NPR affiliate, plaintiff was labeled as an “independent business owner,” recruited to the company in 2015 and working on sales until 2019. Sellers who recruit new salespersons are part of the “upline” system. Those they recruit are part of the “downline.” Upline salespersons are able to earn commission and bonuses the more people they have downline.
Plaintiff alleges the business makes it money with recruitment and fees, rather than sales of actual products. Plaintiff says that over the course of four years with the company, he made a grand total of two product sales (to his mother). Yet he purchased roughly $50,000 in Amway products himself. The way he actually made any money was through recruiting. This, say his attorneys, is a key point in the employment lawsuit. These workers are not salespeople at all, employment lawyers say, but rather recruiters.
Why does this matter? Because California statutes pertinent to employee classification specifically exempt salespersons from being classified as employees. California has some of the most significant protections for workers labeled as employees. They are entitled to things like minimum wage, sick leave, overtime, breaks and more.
Plaintiffs say Amway should be applying this standard to its “independent business owners.”
Whether a court agrees will depend on whether plaintiffs can prove the company had significant control over their day-to-day operations. Although not all companies work this way, Amway reportedly requires workers to adhere to all company guidelines and refrain from working for other direct sales companies. Further, these individuals are performing a core part of the company’s business – something that tips the scales in favor of an employee rather than independent contractor designation.
Plaintiff is seeking back pay for all hours worked to recruit, as well as reimbursement for the products and equipment purchased from the company.
The company denies the claim has merit, and is poised to argue that the newly-passed AB5 specifically exempts workers in direct sales from being classified as employees.
Contact the employment attorneys at Nassiri Law Group, practicing in Orange County, Riverside and Los Angeles. Call 714-937-2020.
California lawsuit claims Amway sellers should be classified and paid as employees, Jan. 14, 2020, By Dustin Dwyer, Michigan Radio