The Bureau is an independent law enforcement agency. We contribute to the prosperity of Canadians by protecting and promoting competitive markets and enabling informed consumer choice.

When there has been a contravention or violation of the Act, the Bureau's objective is to correct anti-competitive activities and deter responsible firms and individuals from future anti-competitive conduct. The Bureau also encourages firms to set up corporate compliance programs to ensure they adopt policies and practices that conform with the law.

The Bureau sees vigorous communication and advocacy as important to achieving compliance and, consequently, works to inform businesses and other stakeholders about the laws. Through its advocacy program, the Bureau actively promotes a competitive marketplace and contributes to the development of competition policy legislation.

The Bureau's commitment to educating the marketplace is complemented by several forms of voluntary compliance. These range from written opinions, which assist businesses that want to avoid breaking the law, to alternative case resolutions, which correct anti-competitive behaviour in a timely and cost-effective fashion.

Businesses and individuals who disregard the law or fail to take advantage of opportunities for voluntary compliance may be prosecuted by the Director of Public Prosecution Service of Canada in criminal court or be subject to civil litigation by the Bureau before the Competition Tribunal or in a civil court.

Operators and participants of a new MLM plan may make representations relating to compensation without any past information on which to base the representation. Representations about new MLM’s must consider the factors listed in paragraph 55(2)(b) of the Act, which include:

1. the nature of the product (including its price and availability);
2. the nature of the relevant market for the product;
3. the nature of the plan and similar plans; and
4. whether the operator of the plan is a company or other form of business organization.

Following this, representations should be examined to ensure that they are realistic and reliable.

Compensation levels in new MLM plans should be reviewed after six months from commencement to ensure that there is no major discrepancy between the disclosure of the stated levels of compensation likely to be received and the levels of compensation actually being received by typical participants in the plan. After one year, the operator of an MLM plan should disclose compensation actually received by typical participants instead of any projected compensation forecasts.

Foreign MLM plan operators wishing to expand operations into Canada may make representations relating to compensation based on that plan’s foreign compensation history. Basing information from a foreign history is conditional on the operator establishing that there are sufficient similarities between the foreign MLM plan and the proposed Canadian MLM plan, such as:

1. type of product;
2. market conditions; and
3. demographic similarities.

Compensation actually received by typical Canadian participants should be used after one year and reviewed and updated annually.

An operator must demonstrate that sufficient efforts were taken to communicate his/her policies and procedures to all participants of the plan. As well, operators must demonstrate that sufficient efforts to prevent wrongdoing are in place and any wrongdoing is corrected.

Operators are responsible for clear, concise and continuous communication regarding their MLM policies and procedures to participants and prospective participants. In addition, the operator should implement effective sanctions against those participants who do not comply with his/her policies and procedures. In short, the greater the effort by operators to ensure that participants are aware of, and follow their policies, the more due diligence is established.

Example #3

Circumstance:

A participant eager to recruit other participants into an MLM plan tells a prospective participant that he can earn $1,000 a week under the plan.

Comment:

If this representation does not constitute or include fair, reasonable and timely disclosure of the information required by subsection 55(2.1), the MLM plan operator and/or participant has committed an offence under subsection 55(3). The MLM plan operator, if able to demonstrate that due diligence was exercised and that he or she took reasonable precautions to prevent the participant from making this representation, would have the defence under subsection 55(2.2) available to him or her.

Note: refer to page 11 and what constitutes ''fair, reasonable and timely disclosure''.

Example #4(a) and #4(b)

Circumstance:

The operator of an MLM plan prohibits participants from making representations relating to compensation earned by participants in the plan. The operator has clearly communicated this policy to participants in the promotional material it has supplied, including the distributor agreement signed by each participant. The operator reiterates this policy at company functions, such as its annual meeting. Consider the following two different scenarios:

(a) References to the policy at annual meetings are generally met with derisive laughter because the operator does not enforce it and most participants consider it, "not worth the paper it's written on." There are frequent incidents in which participants make representations about inflated compensation.
- or -
(b) The operator also monitors seminars promoting the plan. Incidents in which participants make representations related to compensation are rare and the operator takes effective punitive measures against those participants who do not follow its policy.

Comment:

Example #4(a) outlines a situation where a due diligence defence could not be established by the operator, while in example #4(b), a due diligence defence could be established.

Example #5

Circumstance:

A company operates an MLM plan in which participants make representations relating to compensation. The operator gives participants and prospective participants information relating to compensation received by typical participants in the plan. The operator has not reviewed the information to ensure that it remains accurate.

Comment:

This example outlines a situation where a due diligence defence could not be established by the operator if participants make representations related to compensation that are inaccurate because the information was not updated by the operator.

Operator's or seller's cost is the amount that the operator of a MLM pays for a product. When the Act requires that a participant in an MLM plan pay no more then the operator’s cost for a product, this means that the operator must supply the product to the plan participants at the same cost that the operator paid to either produce or purchase it.

Paragraph 55.1(1)(a) of the Act prohibits situations in which participants give consideration, including cash or any other benefit, to join an MLM plan, and in turn receive consideration when others are recruited into the plan. The terms “recruitment bonuses” and “head-hunting fees” are often used to refer to such situations.

Example #6

Circumstance:

An operator initiates an MLM plan in which a prospective participant must pay $150 to be eligible to receive $50 for each person they recruit into the plan who also pays $150.

Comment:

This plan falls within the definition of a scheme of pyramid selling [paragraph 55.1(1)(a) of the Act] because the participant receives $50 as compensation for each prospective participant they recruit. As such, an offence has been committed under subsection 55.1(3) of the Act.

Example #7

Circumstance:

An operator initiates an MLM plan in which prospective participants who have paid to join the plan are required to recruit a certain number of other prospective participants into the plan before they are eligible to receive compensation under the plan.

Comment:

This plan falls within the definition of a scheme of pyramid selling [paragraph 55.1(1)(a) of the Act] as the plan requires participants to pay to join the plan and only provides the right to receive compensation when they recruit other prospective participants into the plan. As such, an offence has been committed under subsection 55.1(3) of the Act.

Example #8

Circumstance:

An MLM plan provides participants with compensation in the form of bonuses if they quickly recruit other prospective participants into the plan.

Comment:

Paragraph 55.1(1)(b) of the Act prohibits MLM plans where participants pay for a certain quantity of products as a condition of participation in the plan. This provision also prohibits MLM plans where existing participants must purchase products in order to attain a higher commission/benefit level. Paragraph 55.1(1)(b) allows participants to purchase products that are bought at the seller's cost price for the purpose of facilitating future sales. Accordingly, a plan is not likely to raise an issue under this paragraph if a recruit was required to purchase a "starter's kit" (manual, directives, product samples, promotional material) at the seller's cost price including reasonable handling and shipping costs. One factor the Bureau will also take into consideration, is whether a significant portion of sales have been made to retail customers. The absence of retail sales could indicate that the product was not bought at the sellers cost for the purpose of facilitating sales, and thereby raises an issue under the Act.

An MLM plan may not have a requirement to purchase a product which is at a price above the seller’s cost. In determining whether a requirement to purchase product exists in a plan the Bureau considers numerous factors including the following:

1. whether there is incentive for participants to purchase the product(s) to receive compensation under the plan;
2. whether the plan requires that participants maintain a certain minimum level of periodic sales of the product(s) to receive compensation under the plan;
3. whether participants are required to achieve a one time minimum level of sales of the product(s) to receive compensation under plan;
4. whether the product is meant for sale to non-participants of the plan; and
5. the nature of the product involved in the plan (e.g. tangible good, membership etc.).

The Bureau will consider each MLM plan on a case by case basis in determining whether participants are required to purchase product to participate in the plan.

While purchase requirements are likely to contravene this section, sales requirements involving the sale of a product or products to non-participants of the plan are not likely to contravene this section.

Example #9

Circumstance:

An operator establishes an MLM plan in which a participant, as a condition of entry, must purchase $75 of product samples at the seller's cost price to allow the participant to demonstrate the operator’s various products. The suggested retail price of the product is $125.

Comment:

This plan is not likely to fall within the definition of a scheme of pyramid selling [paragraph 55.1(1)(b) of the Act] as the product is purchased at the seller's cost price to facilitate sales. If this is the case, there is not likely an issue under the Act.

Example #10

Circumstance:

An operator establishes an MLM plan promoting widgets and provides prospective participants with the right to purchase a training package. The training package is sold at a price which is higher than the operator’s cost. In purchasing the training package, new participants also have the right to sell the training packages once they are “trained”. Participants of the plan receive a monetary bonus in compensation each time they sell a training package to other prospective participants of the plan.

Comment:

This plan appears to promote two products, widgets and training. The requirement to purchase the training package before a participant can sell training packages is likely to raise an issue as a required purchase as defined by paragraph 55.1(1)(b). In addition, the compensation paid for the training package and the associated right to receive compensation for recruiting and training new participants, who may in turn pay for the same right, is likely to raise an issue as a recruitment bonus as defined by paragraph 55.1(1)(a). If this is the case, there is likely an issue under the Act.

Example #11

Circumstance:

Comment:

This plan is likely to fall within the definition of a scheme of pyramid selling [paragraph 55.1(1)(b) of the Act] as participants are required to purchase a specified quantity of the product on a monthly basis in order to participate in the plan. If this is the case, there is likely an issue under the Act.

Example #12

Circumstance:

An MLM plan provides prospective participants of the plan with the right to purchase product when first joining. The product is sold at a price which is higher than the operator’s cost. When a participant sells the product to a new member at the time of joining, that participant receives a monetary bonus.

Comment:

By tying the bonuses to the sale of product to new participants in the plan, the plan has created an inducement for participants to require their new recruits to make this purchase. This could be considered to be a purchase requirement as a condition of participating in the plan, which falls within the definition of a scheme of pyramid selling as defined by paragraph 55.1(1)(b) of the Act. In addition, the compensation paid for the product sold and the associated right to receive compensation for recruiting and selling the product to new participants falls within the definition of a scheme of pyramid selling as defined by paragraph 55.1(1)(a) of the Act.

Paragraph 55.1(1)(c) of the Act prohibits an operator or a participant in an MLM plan from supplying products to participants in amounts that he or she knows are commercially unreasonable. In other words, there can be no inventory loading. "Commercially unreasonable" is based on considerations such as:

1. the type of product;
2. the selling price of the product;
3. the size of the market;
4. the number of participants;
5. the number of competitors; and
6. the sales history of the products.

Example #13

Circumstance:

An operator establishes an MLM plan in which participants are deliberately supplied with large quantities of product at the wholesale price following entry into the plan. The market for the product is depressed due to the substantial number of competing companies. Numerous participants in the same geographic market have recently joined the plan and they also have purchased large quantities of products. The sales history of the product has not been successful.

Comment:

This situation may fall within the definition of a scheme of pyramid selling [paragraph 55.1(1)(c) of the Act] as the facts suggest that participants are unlikely to be able to sell the large quantity of products purchased. If this is the case, there is likely an issue under the Act.

Under paragraph 55.1(1)(d) of the Act, MLM plans must have a buy-back guarantee, or a right to return the product in saleable condition on reasonable commercial terms. Participants must also be informed of the buy-back guarantee or right and how it can be exercised. Further, participants should be given the option of returning the product to the participant from whom they purchased it or to the operator.

Factors to be considered in determining what constitutes "reasonable commercial terms" include, but are not limited to:

1. the type of product;
2. the cost of the product;
3. the condition of the product (whether the product is damaged or otherwise unsaleable);
4. the number of times a participant may return a product under the plan;
5. the number of days a participant has to return a product after purchasing the product;
6. the percentage of money refunded;
7. any consequences, including termination, if a participant returns product; and
8. the product return policies of other companies offering similar products.

The buy-back guarantee of some MLM plans provide for the termination of any participant who exercises their right to return product. The operator’s buy-back guarantee may be interpreted by the Bureau to be commercially unreasonable if it includes a termination clause. In determining whether an operator’s buy-back guarantee is commercially unreasonable because it includes a termination clause, the Bureau considers factors including, but not limited to, the following:

1. the cost to join the plan;
2. the number of times a participant can return product under the plan; and
3. the amount of product that can be returned by a participant.

The Bureau reviews the termination clause in each plan on a case by case basis and acknowledges that in certain situations a termination clause in an operator’s buy-back guarantee may be commercially reasonable.

A commercially reasonable policy must be competitive and consistent with what is offered by suppliers and retailers of similar products. As well, the policy must not create an incentive for a participant to accumulate products rather than return them to the operator.

Example #14

Circumstance:

An operator establishes an MLM plan featuring the sale of widgets. The operator will return 90% of the money spent on the product and allow 120 days for participants to exercise their right to return products in saleable condition. The operator has made the terms of the policy known in promotional material and in agreements signed by participants. The policy and related procedures are also discussed at seminars and participants are trained to inform prospective participants about them prior to recruitment. Overall, this policy is similar to product return guarantees of similar companies. Participants must return the product at their own expense. The operator does not earn a profit on product return.

Comment:

This return policy is not likely to fall within the definition of a scheme of pyramid selling [paragraph 55.1(1)(d) of the Act] as the operator’s return policy appears to be on commercially reasonable terms. If this is the case, there is not likely an issue under the Act.

Example #15

Circumstance:

An operator establishes an MLM plan that provides participants with the right to return product and to be reimbursed for that product however, in exercising their right to return product, the participant will be terminated from the plan. A new participant of the plan has purchased a specific product from the operator. Upon receiving the product the participant finds they have difficulty generating sales. The participant would like to return the product but chooses not to return the product knowing he or she would be terminated from the plan.

Comment:

This plan is likely to fall within the definition of a scheme of pyramid selling [paragraph 55.1(1)(d) of the Act] as the termination clause is likely to be interpreted by the Bureau to be commercially unreasonable. The consequences of a buy-back guarantee should not be so negative for the participant that the participant would prefer to suffer a loss rather than seek a refund for the product. The buy-back guarantee appears to be commercially unreasonable. If this is the case, there is likely an issue under the Act.

Example #16

Circumstance:

An operator establishes an MLM plan that provides participants of the plan with the right to return product and to be reimbursed for that product. A participant of the plan has purchased a certain quantity of products from the operator for the purpose of qualifying for sales bonuses. The participant has difficulty selling the product and returns the product. The operator requires all bonuses received on that product to be repaid.

Comment:

This plan is not likely to fall within the definition of a scheme of pyramid selling [paragraph 55.1(1)(d) of the Act] as the bonus repayment clause is likely to be commercially reasonable. If this is the case, there is not likely an issue under the Act.

The Bureau facilitates compliance with the law by providing written opinions pursuant to section 124.1 of the Act, subject to a fee. A written opinion provided under section 124.1 is binding on the Commissioner. It remains binding for as long as the material facts on which the written opinion was based remain substantially unchanged and the conduct or practice is carried out substantially as proposed.

Company officials, lawyers and others are encouraged to request a written opinion as to whether the implementation of a proposed business plan or practice would raise an issue under the Act. A specific written opinion will be based on information provided by the requester and will take into account previous case law, prior written opinions and the stated policies of the Bureau.

The requester should recognize that written opinions are only given in relation to the Act and not in relation to other statutes, such as the Criminal Code.

Those who seek a written opinion are not bound by it and should a negative written opinion be given on the plan, operators remain free to adopt the plan in question, recognizing that the matter may be prosecuted in the courts. Such written opinions are prepared in relation to a specific set of facts. Should a plan that is implemented be different from the plan presented to the Bureau, or should conditions change in a way that materially affects the plan, the plan could be subject to further examination.

The following are requirements when applying for a written opinion under section 124.1 of the Act:

In order for the Bureau to provide an informed written opinion, adequate disclosure of all material facts relating to the proposed plan is required. The more complete and accurate the information provided, the less the Bureau will have to qualify its written opinion. The information that is submitted should include the following: the name of the requester, the name of the proposed business, a description of the compensation plan, the methodology used for determining the compensation of a “typical participant”, all promotional brochures, training material, presentation scripts, pamphlets, videos, audiotapes, a copy of any web sites, contractual agreements, product information, product ordering forms and any other material which provides information relating to the marketing plan.

The Bureau requires that a product exist at the time of the MLM written opinion request. A detailed description of the product should be provided. If a representation about the product’s performance or efficacy is to be made the Bureau requires an adequate and proper test in support of the representation.

The operator must confirm that the proposed MLM plan is not the subject of an investigation by any other law enforcement agency in Canada or abroad.

Documentation provided by the operator must also indicate that the operator of the plan has been incorporated in Canada or, alternatively, that there is an individual located in Canada who can be held liable for the actions of the operator.

The proposed MLM plan should not be presently operating in Canada, nor have active participants, even on a test marketing basis. Generally, the Bureau will deny an applicant’s written opinion request if the plan is already operating in Canada. An exception exists in that certain Canadian provinces (such as Alberta, Saskatchewan, Manitoba and Nova Scotia) require operators of MLM plans to obtain a favourable written opinion from the Bureau prior to issuing a Direct Sellers License to operate in their respective provinces. The Bureau will consider issuing written opinions to MLM plan operators who are already engaged in business in one or more provinces, but require a written opinion from the Bureau in order to obtain the necessary provincial license to commence business in one of the provinces that impose such conditions.

It is the Commissioner’s practice not to issue written opinions under section 55 and 55.1 of the Act in the following situations:

• insufficient information is provided for the Bureau to properly assess the proposed MLM plan;
• there is no product associated with the proposed MLM plan;
• the MLM plan is currently under investigation by another Canadian or foreign authority;
• the MLM plan has no legal Canadian identity;
• the MLM plan is already operating in Canada (refer to Proposed Conduct on page 21 for exception);
• the plan involves gold or silver coins, the travel industry, discount cards, or where the product of the plan is ‘training’. A written opinion will not be provided in these situations because of the difficulty of establishing the value of these products;
• the MLM plan contains performance representations that are not based on an adequate and proper test;
• the MLM plan contains other conduct contrary to the Act; and
• the MLM plan contains conduct contrary to other Canadian legislation.

If a proposed plan raises an issue under any other section of the Act, the Bureau may decline to issue a written opinion for the plan. Please note that only one fee (the highest) applies for a written opinion that might involve multiple sections of the Act. As outlined below, one relevant area of potential concern relates to performance claims.

Many MLM plans promote the supply or use of their product(s) with representations about their product(s) performance or efficacy. Under section 74.01(1)(b), the Act requires that any representation to the public in the form of a statement, warranty or guarantee about the performance, efficacy or length of life of a product be based on an adequate and proper test.

It is the applicant’s responsibility to ensure that representations related to performance, efficacy or length of life of the product are based on an adequate and proper test. The Bureau may exercise its discretion to refuse a written opinion request if it has concerns that the representations are not based on an adequate and proper test.

If a proposed plan appears to raise an issue under other Canadian legislation, the Bureau may decline to issue a written opinion under the MLM plan provisions. In such circumstances, the Bureau may consult with the department or agency that administers the relevant legislation to determine whether it would be appropriate to issue an MLM written opinion.

The penalties upon conviction for an offence under subsections 55(2) and 55(2.1), the MLM plan provisions, are set out in subsection 55(3) of the Act. The penalties upon conviction for an offence under section 55.1, the scheme of pyramid selling provisions, are set out in subsection 55.1(3) of the Act.

Anyone wishing to obtain additional information about the Competition Act, written opinions, or file a complaint under the provisions of the Act should contact the Bureau’s Information Centre at:

Telephone
Toll free: 1-800-348-5358
National Capital Region: 1-819-997-4282
TDD (for hearing impaired): 1-800-642-3844

Facsimile
1-819-997-0324

Address
Information Centre
Competition Bureau
50 Victoria Street
Gatineau, Quebec
K1A 0C9

A.1 Multi-level Marketing Plan

55. (1) For the purposes of this section and section 55.1, "multi-level marketing plan" means a plan for the supply of product whereby a participant in the plan receives compensation for the supply of the product to another participant in the plan who, in turn, receives compensation for the supply of the same or another product to other participants in the plan.

2) No person who operates or participates in a multi-level marketing plan shall make any representations relating to compensation under the plan to a prospective participant in the plan unless the representations constitute or include fair, reasonable and timely disclosure of the information within the knowledge of the person making the representations relating to
(a) compensation actually received by typical participants in the plan; or
(b) compensation likely to be received by typical participants in the plan, having regard to any relevant considerations, including

1. the nature of the product, including its price and availability,
2. the nature of the relevant market for the product,
3. the nature of the plan and similar plans, and
4. whether the person who operates the plan is a corporation, partnership, sole proprietorship or other form of business organization.

(2.1) A person who operates a multi-level marketing plan shall ensure that any representations relating to compensation under the plan that are made to a prospective participant in the plan by a participant in the plan or by a representative of the person who operates the plan constitute or include fair, reasonable and timely disclosure of the information within the knowledge of the person who operates the plan relating to
(a) compensation actually received by typical participants in the plan; or
(b) compensation likely to be received by typical participants in the plan, having regard to any relevant considerations, including those specified in paragraph (2)(b).

(2.2) A person accused of an offence under subsection (2.1) shall not be convicted of the offence if the accused establishes that he or she took reasonable precautions and exercised due diligence to ensure
(a) that no representations relating to compensation under the plan were made by participants in the plan or by representatives of the accused; or
(b) that any representations relating to compensation under the plan that were made by participants in the plan or by representatives of the accused constituted or included fair, reasonable and timely disclosure of the information referred to in that subsection.

(3) Any person who contravenes subsection (2) or (2.1) is guilty of an offence and liable (a) on conviction on indictment, to a fine in the discretion of the court or to imprisonment for a term not exceeding five years or to both; or
(b) on summary conviction, to a fine not exceeding two hundred thousand dollars or to imprisonment for a term not exceeding one year or to both.