Multi-level marketing is not a business. It is a thinly veiled pyramid scheme, designed to appear legal to regulators. Not only is it not a business, when you’re in Mary Kay, you don’t actually OWN anything. Look no further than a lawsuit between Mary Kay Inc. and Amy Dunlap, a former Mary Kay national sales director. (This lawsuit was settled a couple of years ago, but I’m bringing it up now to illustrate what a top-ranking member of the “sales force” had to say about Mary Kay’s business opportunity.)
In the lawsuit, Amy said that Mary Kay lies to women when it says you “own your own business”:
11. Mary Kay, in the conduct of its multilevel marketing business, has engaged in false, misleading, and deceptive acts and practices, as the purveyor and seller of an Independent Business Consultant business to Defendant and the many other Independent Beauty Consultants, Unit Independent Sales Directors, and National Sales Directors similarly situated to her, which acts and practices are unlawful under the provisions of §17.46 of the Texas Business and Commerce Code.
12. By agreeing to acquire her beauty consulting business as an independent contractor, entrepreneur and the owner of her own business as a result of her contracts with Mary Kay, Defendant was a consumer of the Defendant’s services as that term is defined under §17.45 of the Texas Business and Commerce Code, having relied on the written and oral representations of Plaintiff that, as an “independent dealer” she was the owner of her own business. Throughout her relationship with Mary Kay, until the very end, she was deceived by the company’s continuous, non-stop, orchestrated campaign through speeches at the annual Seminars, business opportunity meetings, CDs, DVDs, cassette/VCR tapes, brochures, letters and emails, representing to her and the other Consultants in her National Sales Director Unit, and throughout the company for that matter, that they were being provided by Mary Kay the business opportunity of “owning” their “own business.”
13. Mary Kay, among other deceptive practices, has repeatedly represented to Defendant, its other Independent Beauty Consultants, Unit Independent Sales Directors, and Independent National Sales Directors that their status as such independent contractors affords them the complete ownership of their “own business” which is a deliberate falsehood inasmuch as the Plaintiff’s executives are all well aware of the fact that Mary Kay strictly forbids its Consultants, Sales Directors, and National Sales Directors to sell, transfer or will their “businesses,” and wrongfully enjoys the fruits of the labors of those independent contractors by forfeiture of their right to receive the “income stream” or value of it when they die, leave or are terminated by Mary Kay. These trade practices of Mary Kay were misleading, deceptive, and false in that Mary Kay never compensated Defendant for her business after taking it from her without compensation when she resigned as National Sales Director, and would not allow her to sell or will her “business.” Under the provisions of the Texas Business and Commerce Code, Mary Kay violated the provisions of § 2.210(b) of the Texas Business & Commerce Code which renders Section 13 of the Independent National Sales Director Agreement (Exhibit “A” hereto) void since that section requires that contractual rights such as are provided for in the Independent National Sales Director Agreement are assignable thereby allowing Defendant Dunlap’s business to be assigned or otherwise transferred by gift or will. Defendant is entitled to an award of reasonable and necessary attorneys’ fees and court costs pursuant to the provisions of §17.50(d) for being required to defend herself from Plaintiff’s attempt to enforce its false, misleading, and deceptive agreement.
14. The intentionally false, misleading and deceptive acts which are complained of in this Counterclaim have been committed knowingly, and intentionally, giving rise to damages for mental anguish, including intense and continuous feelings of humiliation suffered by Defendant at the hands of the Plaintiff, as well as the economic damages suffered by the Defendant herein, in an amount which is presently unascertained but which Defendant believes to be in excess of $1,000,000.00, which amount should be trebled under the provisions of §17.50 of the Texas Business and Commerce Code, making the total amount of her damages not less than $3,000,000.00 .
While I agree with Amy Dunlap’s accusation that Mary Kay is lying when it says you “own your own business,” I also believe that Amy told the very same lie all the years she was in Mary Kay. I think each and every member of Amy’s national area should now sue her personally for the same lie.
How do I know this? Here is a document that I downloaded from Amy Dunlap’s website on July 14, 2006, entitled Frequently Asked Questions. It was a flyer for Mary Kay husbands. And in this flyer, Amy says:
1. Exactly what will my wife be doing?
She will be teaching skin care to women and selling Mary Kay products. She will be self employed in her own business. She will not be my employee. She will hold skin care classes and facials for small groups of women.
4. What sort of hours will my wife be expected to work?
She may set her own hours since she’s in business for herself. We do not impose any quotas or requirements. However, we suggest that the two of you develop a weekly plan sheet every week so you know and agree upon her schedule. Her hours can vary depending on family plans and desired income. It is vital that you agree upon her schedule and that she works as planned. The more hours worked the higher her income potential.
6. What is in the starter kit?
Your wife is setting up her own business, and she needs tools with which to work. The kit includes demonstration products for her use at skin care classes. She also receives a selection of literature to help her get started. This is essentially all she will need to get started. It actually contains over $306 in full size products, samples and supplies for only $100.
Oops. I suppose Amy was hoping no one had any of her training documents. While I have no desire to help Mary Kay Inc. in any way, fair is fair. If she’s going to claim that Mary Kay is violating the law, it is only fair to point out that she did exactly what she is accusing MK of doing.
Amy’s other counterclaim has to do with anti-trust laws. She is basically saying that through the non-compete clauses in the consultant agreement, sales director agreement, and national sales director agreement, Mary Kay is making it so that women can’t earn a living through other multi-level marketing companies:
19. The anti-competition covenants on which Plaintiff insists every Mary Kay independent consultant sign, whether an Independent Beauty Consultant, Unit Independent Sales Director, or Independent National Sales Director such as the Defendant herein, are part of a concerted and effective effort by Plaintiff to vertically restrain trade by tying up and eliminating potential competition from Plaintiff’s independent contractors and other direct sales companies much smaller than Plaintiff who sell cosmetic products similar to Plaintiff’s line of cosmetic products, particularly in, but not limited to, the Texas market. Plaintiff is attempting to restrain Defendant by use of its unlawful non-compete agreement from competing with Plaintiff and those other independent contractors with whom Defendant seeks to recruit to assist her in building her current direct sales business. Such restraints by Plaintiff are unreasonable, and because Plaintiff has exerted such tight control over its independent contractors, particularly as it applies to attempts to do business in the Texas market for cosmetics, Defendant has been unfairly damaged, and the growth of her business stunted, economically in an undetermined amount but in no event less than $1,000,000.00 in her efforts to build her business in Texas and elsewhere subsequent to resigning as a National Sales Director with Plaintiff.
I’ve pointed out before how restrictive the Mary Kay agreements are. This is nothing new, and in all of Amy’s years with Mary Kay, she didn’t seem to have any problem with that agreement. It was all fine while she was getting the commission checks, right?
- She was not a “consumer, ” so the Texas law she cites doesn’t apply. Under that law, a consumer is a purchaser of goods or services, and that her complaint arises out of that purchase. Mary Kay says Dunlap did not acquire anything under the NSD agreement by purchase, and that what she received (the right to earn commissions) was not a good or service.
- The NSD agreement does not violate Texas law by prohibiting the sale or transfer of Dunlap’s distributorship, as she alleges. The Texas law says that “unless otherwise agreed,” rights can be assigned. And in the NSD agreement, Dunlap “otherwise agree.” (i.e. When she signed the contract, she agreed she couldn’t sell or transfer.)
- Dunlap objects to the non-compete, which Mary Kay says is more accurately a non-solicitation agreement. Mary Kay says Amy hasn’t shown how the non-solicitation agreement has an adverse affect on the market (impairing competition), so this claim should be thrown out.
The repeated representations that Defendant owned her “own business” which is inconsistent with Section 13 “Assignability” of the Independent National Sales Director Agreement (“INSDA”) attached to the Answer and Counterclaim as Exhibit “A,” shows a conscious scheme and plan by Plaintiff which was a deceptive act and practice under the DTPA. Defendant built an organization of consultants in Mary Kay which is still generating substantial sales and income from those sales to the Plaintiff. The forfeiture by Plaintiff of her income stream from those ongoing sales by the organization of consultants that she built is “unconscionable” under the DTPA. Defendant has alleged her right to receive compensation for such a forfeiture in paragraph 13, Count 1 of her Counterclaim. Plaintiff’s refusal to allow her to obtain the benefit of the income stream is, at the very least, grossly inconsistent with the last sentence of § 2.210(b).
So who really owns the “business” if there even is one? Apparently Mary Kay. You can quit or otherwise leave Mary Kay, but you can’t take anything with you and you can’t sell anything. Once you’re done with Mary Kay, you give up all rights to any customers or income stream. That is not a business, my friends.