A Herbalife lawsuit is underway in the United States. Distributors are suing the company, claiming they were misled into thinking the business model was a pyramid scheme and did not earn compensation based on actual sales. As a result, they lost an average of $17.5 million per distributor in 2016 and over $200 million in 2017. If the lawsuit is successful, it could mean that as many as 100,000 plaintiffs will receive compensation.
Herbalife’s business model is not a pyramid scheme
Despite being accused of being a pyramid scheme by three California agencies, Herbalife’s business model is legit. Instead of charging people to join, Herbalife charges members a minimum of $59 to get started. Once a distributor reaches the supervisor level, they are rewarded with a higher discount on the wholesale price of Herbalife products. In addition, they are given additional incentives through extravaganza events, such as free travel and hotel stays.
A recent lawsuit in a Miami federal court reopened the case, which seeks more than $140 million in damages against 44 top Herbalife distributors. This lawsuit raises serious questions about Herbalife’s multi-level business model. However, Herbalife has operated on the brink of law for decades and has spent nearly half a billion dollars to settle legal accusations.
Herbalife’s compensation must be based on actual sales
In recent years, the U.S. Federal Trade Commission (FTC) has ruled that compensation for distributors must be based on “actual sales” to avoid allowing them to make misleading claims about product sales. As a result, Herbalife is now under fire for not disclosing additional expenses incurred during operating a Herbalife business. This omission can be considered a violation of the FTC’s Anti-Defamation Act.
Although the company is still a publicly-traded company with a net worth of $4.4 billion in 2017, it has been involved in several lawsuits alleging that its business practices are unethical. The lawsuit alleges that Herbalife misled consumers about its product pricing and its commission percentages. The FTC has now ordered Herbalife to make up for its misstatements and revamp its compensation system to compensate its distributors based on actual sales.
Herbalife must pay compensation to consumers
A recent settlement between the FTC and Herbalife has resulted in a $200 million payment to consumers. The settlement says Herbalife defrauded consumers by promising high income without ensuring that their distributors sold Herbalife products or recruited new people to join their downlines. The company must change its compensation system to reward distributors based on retail sales rather than recruitment. The compensation system must also base at least two-thirds of its reward structure on retail sales.
The settlement also states that Herbalife distributors cannot falsely claim their earnings without a substantial investment. The agreement states that more than half of Herbalife distributors in the U.S. were either broke or lost money within a year. A recent survey found that Herbalife distributors spent $8,500 on average to launch a Nutrition Club, but that they earned no profit. The majority of distributors also did not earn a profit from their business.
Herbalife’s top distributors must be held accountable
To prevent the abuse of the Herbalife compensation system, the top distributors must be held accountable. The company’s compensation plan has several layers, with the “president’s team” being the highest tier. There are even higher levels, called “chairman’s club” and “founder’s circle,” which are intended to reward top distributors for their contributions to the company’s success.
Some of the top distributors have been buying enormous amounts of products from Herbalife and purportedly reselling them to lower-level distributors. These “field sales,” as they are called, have raised serious red flags about Herbalife’s business practices. The company’s top distributors are also keeping massive amounts of products in warehouses in Mexico and selling them to other distributors at lower levels. This raises questions about Herbalife’s accountability.
Despite this fact, Herbalife continues to make new presidents’ teams every year. In 2012, there were 46 president’s team members compared to just 18 in 2005. Some people have lost money in Herbalife, and top distributors need to be held accountable for that. But, Herbalife’s top distributors must be held accountable for letting customers down and misrepresenting the company’s products and services.