Employment and job opportunities, homeworking and trading schemes

Trading schemes may be called direct selling schemes, network marketing, multi-level marketing, multi-level franchising or other names. Participants are self-employed and earn money by selling the scheme's goods or services, often in a small way and from home. In some schemes participants may earn additional commission by recruiting others and from the sales of their recruits.

Trading schemes must comply with the legislation in the Fair Trading Act 1973 as amended by the Trading Schemes Act 1996 and the Trading Schemes Regulations 1997.

What are the legal requirements?

• You must not persuade someone that the main motive for joining is to profit from recruiting others or to take money from someone on the basis of such a motive.

It is a criminal offence to persuade someone to make a payment to a scheme by promising benefits from getting other people to join a trading scheme. However, this does not make recruitment rewards unlawful.

• You must ensure that any adverts in handbills, brochures, audio and video tapes and similar promotional material which invite people to join the scheme show:
  • the name and address of the promoter
  • the products or services covered by the scheme
  • the following warning:

'It is illegal for a promoter or participant in a trading scheme to persuade anyone to make a payment by promising benefits from getting other people to join a trading scheme'.

• If you do make a claim about earnings, the following warning must appear by the claim:

'Do not be misled by claims that high earnings can be easily achieved'.

• You must give recruits a written contract before they participate in the scheme which includes the following information:
  • the name and address of the promoter of the scheme
  • a description of the products covered by the scheme (you need only simply state what is bought and sold by participants in the scheme. If you refer to other documents in which the products are described in more detail you must provide copies of these documents with the contract).
  • a description of the participant's role in the scheme (this only has to be in the simplest of terms. If you provide the participant with other documents that describe his activities, or other rules of the scheme, the contract should refer to these documents and you must provide copies with the contract).
  • the participants rights to cancel or terminate the contract, related rights on returning goods and the information participants need to exercise these rights.
  • any payments participants have to make in the first year.
  • the participants rights to have at least 60 days warning of any change in future payments.
  • the participants rights if the promoter seeks to recover commission.

What are the participant's rights after signing?

• In the first 7 days after they have signed the contract, you can legally ask the participant for no more than £200 in total. Post-dated cheques, standing orders etc do not get around this limit.
• They have the right to cancel the contract in the first 14 days after signing.
• They have the right in the first 14 days to return to you anything that the scheme has provided, to cancel any service to which they have subscribed and to claim a full refund, provided they had not let the goods deteriorate. The promoter must pay for the cost of returning the goods.
• The participant can terminate the contract at any time by giving 14 days written notice to the promoter. This notice releases the participant from all obligations to the promoter that are set out in the contract, with one possible exception. This exception allows the promoter to protect his business by keeping in force any clause in the contract which stops the participant competing with the promoter, eg by setting up or participating in a rival scheme.
• If either you or the participant terminates the contract they can return any goods they have bought during the preceding 90 days to the promoter and claim back the money they paid for them.
• If the participant terminates the contract, they pay the cost of returning the goods and possibly a handling charge for repacking opened goods (unless the contract says otherwise).
• If the promoter terminates, the promoter pays the cost of returning the goods.
• If there is provision in the contract to do so, the promoter can reclaim commissions from participants if they have not been earned according to the provisions of the contract. However, on termination of contract, only commissions that have been paid less than 12 days previously can be reclaimed.

These rights to return goods are in addition to the rights the participant has under the Sale of Goods Act to reject goods which are not of satisfactory quality.

What rights do participants have who have participants below them in the network

They have the rights and obligations of participants but also have the obligations of promoters when dealing with participants in the network.

Schemes to which the regulations do not apply

The Trading Schemes (Exclusion) Regulations 1997, as amended, provide exclusions for the following:

• schemes that have only the promoter, or, in the case of a foreign based operation, a single UK participant at one level and all other participants operate at one level below. The latter participants may receive a benefit for introducing a recruit limited to the value of £50. The proceeds from the sale of a business that is registered for VAT are disregarded for the purpose of establishing a benefit. Most franchise schemes and many mail order catalogue schemes and party plans will thus be excluded.
• networks whose members operate independently of each other apart from benefiting from sharing expenses such as advertising or from distribution of profits. This type of operation is most common in pharmaceutical chains.
• networks in which all UK participants are registered for VAT. This removes from the controls schemes in which all the participants should have business experience or be aware of the need to take expert advice on their business arrangements. Motor dealerships and some multi-level franchise schemes may thus be excluded.
• chain letters without a central organiser. Chain letters inviting participants to send money are probably illegal under the Lotteries and Amusements Act 1974.

The DTI's guidance ontrading schemes can be found at www.dti.gov.uk/ccp/topics1/guide/tradescheme.pdf

Other controls on the advertising of employment and job opportunities

Internet advertising is self-regulated through the Advertising Standard's Authority's (ASA's) Code of Practice. This states that adverts must be Legal, Decent, Honest and Truthful.

The ASA can take action to have an advert withdrawn or changed without having to wait for a complaint.

The ASA Codes can be viewed at www.asa.org.uk. The following rules are specifically for employment and job opportunities but the Code also contains general requirements applicable to all adverts or promotions:

• Advertisers should distinguish clearly between offers of employment and business opportunities. Before publication, media normally require full details of the advertisers and any terms and conditions imposed on respondents.
• Employment adverts must correspond to genuine vacancies and potential employees must not be asked to send money for further details. Living and working conditions should not be misrepresented. Quoted earnings should be precise; if a forecast has to be made this should not be unrepresentative. If income is earned from a basic salary and commission, commission only, or in some other way, this should be made clear.
• An employment agency must make clear in adverts that it is an employment agency.
• In relation to homework schemes that require participants to make articles, perform services or offer facilities at or from home, the following information should be given to consumers before they commit themselves:
  • the full name and address of the advertisers
  • a clear description of the work; the support available to homeworkers should not be exaggerated
  • an indication of whether participants are self-employed or employed by a business
  • the likely level of earnings, but only if this can be supported with evidence of the experience of current homeworkers
  • no forecast of earnings if the scheme is new
  • details of any required investment or binding obligation
  • details of any charges for raw materials, machines, components, administration and the like
  • information on whether the advertisers will buy back any goods made
  • any limitations or conditions that might influence consumers prior to their decision to participate.

• Adverts for business opportunities should contain:
  • the name and contact details of the advertisers
  • where possible, a clear description of the work involved and the extent of investors' commitments, including any financial investment; the support available should not be exaggerated.
  • no unrepresentative or exaggerated earnings figures

• Adverts for vocational training and other instruction courses should make no promises of employment unless it is guaranteed. The duration of the course and the level of attainment needed to embark on it should be made clear.
• Adverts for the sale of directories giving details of employment or business opportunities should indicate plainly the nature of what is being offered.

Please Note

This leaflet is not an authoritative interpretation of the law and is intended only for guidance. For further information please contact your local Consumer Protection or Trading Standards office.

Trading Standards Division, 3rd Floor, Wallasey Town Hall, Brighton Street, Wallasey, Wirral CH44 8ED
Telephone: (0151) 691 8020    Fax: (0151) 691 8098
Internet World Wide Web http://www.tradingstandards.gov.uk/wirral/
Electronic Mail: tradingstandards@wirral.gov.uk