I’ve been a little busy in the brand x and offline world the last while (as well as setting up Amway Talk) so I haven’t had much chance for posting updates about the goings on in the world of Amway.
Amway UK & ROI has however passed a major milestone. On Monday, July 21, limited sponsoring of new Amway Business Owners began. This followed the UK High Court refusing BERR’s petition to close down Amway. BERR has appealed that decision, however Judge Norris refused their application to force Amway to maintain a moratorium on sponsoring new ABOs. Given the milestone, this is as good as time as any to review BERR vs Amway UK, it’s result, it’s effect, and the basis of the appeal.
BERR’s initial complaint outlined 3 areas of concern they had with the Amway business in the UK. They claimed –
(1) that the Amway business was “inherently objectionable” because it was promoted as offering certain obtainable rewards, when in fact very few people obtain those rewards. Given there was a joining and renewal fee, this would mean significant number of people would lose money.
(2) that Amway was an unlawful lottery, with bonus payments substantially dependent upon chance and wholly unpredictable, due to most volume, and thus bonuses, coming not from personal sales and personally sponsored ABOs, but the efforts of those further removed in an organization
(3) that it was an “unlawful trading scheme” under the Fair Trading Act, something I discussed at length a year ago in Amway UK & Ireland – Is this the problem?
In his judgement, Judge Norris found that Amway had no case to answer with regards to points 2 and 3. It was not a lottery, as there was a great deal more than simple “chance” involved in success. In the new model the “unlawful trading scheme” accusation did not apply at all, as there no longer existed a payment for joining, and in the old model, legal precedent suggested that since more than just recruitment was required to earn any benefits (ie product sales also had to occur), then the charge didn’t apply previously either.
Judge Norris was not so kind with regards to charge (1), indeed, he stated that if Amway had not undertaken the changes they had undertaken, then he likely would have found it “just an equitable” to wind up Amway, and approved BERR’s petition. This should make Amway management and IBOs around the world stand to attention.
If Amway UK hadn’t changed, they would have been shut down.
While Judge Norris found that Amway’s offiical material passed muster with regards to presenting the opportunity, a variety of evidence was provided (including some quite damning statements with regards to the IBS organization of former Diamond’s Jerry & Mandy Scriven) that showed that “BSM material made serious misrepresentations in relation to a key part of Amway’s business.” Furthermore, “Amway bears direct responsibility for the statements which it approved or which it failed to subject to a proper review process to ensure actual compliance with the position formally stated on paper.”
In other words, IBOs and IBO organizations were presenting a picture of the Amway business that did not reflect it’s reality in the UK marketplace. Additionally, the evidence showed that, while things were turning around (slowly), Amway UK was a business in serious trouble, with the company itself surviving on financial support from Amway Europe, and very few IBOs actually reaching even the Platinum level of success, let alone the higher incomes promoted by IBOs and officially by Amway.
Amway was held responsible on three counts, firstly for not properly overseeing IBO activities. The court reviewed numerous apparently unapproved materials and statements by IBOs, as well as evidence that Amway Europe’s BSM approval procedure could take 2 years, during which the materials remained in use. Secondly, and far more damning in my opinion, some of the material that Amway did approve explicitly broke Amway’s own rules. Finally, Amway was not providing crucial information that may have significant effect on a person’s decision to join – the small number of people actually succeeding in the UK market.
Clearly, the court took the position that Amway must take responsibility for what it’s IBOs are doing in the field and must be upfront about the fact very few people who joined were achieving anything near the potential shown in the marketing plan.
Judge Norris dismissed the petition on the grounds that, at the time the petition was brought to court, Amway had already addressed the issues BERR had raised and had agreed to maintain them. Namely, Amway was –
(a) to maintain the present prohibition on the production sale or promotion of BSM that is not authorised and distributed by Amway;
(b) not to introduce a registration fee or a renewal fee;
(c) not to recruit new ABOs until it has published earnings data in accordance with a stated income disclosure policy (which requires annual disclosure for 12 month periods of the average earnings and the highest and lowest earnings of each category of ABO together with the minimum income levels for qualification for higher rewards and the number of persons qualified at each level ).
Amway has now published the earnings disclosure and sponsoring has begun again.
More on the data it contains and the appeal in Amway UK moves forward – Part II (coming soon)