A multilevel marketing plan is a legal business model for selling goods and services. Pyramid selling, on the other hand, is illegal and constitutes a criminal offence in Canada.
A multilevel marketing plan promotes the supply of a product to participants in the plan. Participants earn compensation based on supplying products to other participants or customers. A legitimate multilevel marketing plan has three or more levels of participants.
Pyramid selling focuses on generating profits by recruiting others and not primarily from the sale of products. Thus, even when these schemes offer products, the products may have very little value, or few incentives for their sale.
It is a criminal offence to establish, operate, advertise, or promote a pyramid selling scheme.
Multi-level marketing plans, although a legal business model, have rules for operators or participants. If they make a representation relating to compensation, such information must be fair, reasonable and timely.
It is also illegal for a multi-level marketing plan to do any of the following:
- offer compensation for recruitment
- require purchases (other than a start-up kit sold at cost) as a condition of participation
- require participants to buy a large amount of inventory that cannot be resold or used within a reasonable amount of time (inventory loading)
- fail to offer a buy-back guarantee on reasonable commercial terms
These types of activities would be considered pyramid selling under section 55.1 of the Competition Act.
Penalties for non-compliance
Someone who contravenes this criminal provision of the Competition Act can be fined up to $200,000 per count and/or imprisoned for up to one year on summary conviction. On indictment, individuals can face fines at the discretion of the court and/or be imprisoned for up to five years.
Potential for immunity
If you have engaged in a deceptive marketing practice prohibited under the criminal provisions of the Competition Act, you are encouraged to come forward, share what you know, and fully cooperate with our investigation and any subsequent prosecution. If you meet the requirements of the Immunity Program, we will recommend that the Director of Public Prosecutions of Canada provide you with immunity from prosecution.
Having a credible and effective compliance program can provide benefits in dealing with the Competition Bureau to resolve a violation of one of the legislation it enforces. A compliance program can also help:
- reduce the risk of potentially illegal conduct
- protect your brand and reputation
- detect instances of potentially illegal conduct at an early stage
- identify when others might put you at risk
To find out more information on written opinions under section 124.1 of the Competition Act, contact the Bureau’s Information Centre toll-free at 1-800-348-5358 or online. If a written opinion is provided by the Commissioner, a fee will apply based upon the section of the Act the proposed conduct or practice applies to. A written opinion is binding on the Commissioner as long as the facts submitted are accurate, and it remains binding if the facts on which the opinion is based remain substantially unchanged and your conduct or practice is carried out, as proposed. All fees and service standards for written opinions are set out in the Competition Bureau Fee and Service Standards Policy.
- Potential for immunity: Incentives for ending participation in illegal activity
- Written opinions
- Enforcement Guidelines: Multi-level marketing plans and schemes of pyramid selling
- Advertising dos and don’ts
- Technical guidance document: Immunity and Leniency Programs under the Competition Act
- Competition Act, sections 55 and 55.1
- How we foster competition and ensure compliance with the law