A Huntington woman who worked for a multi-level marketing business says the company is violating the Fair Labor Standards Act and ultimately denying people of appropriate wages for their work.
In the case of Amy Williams, the Matilda Jane Clothing Company’s policies are so restrictive and time consuming that she and other salespeople legally are entitled to earn minimum wage under the federal law, according to the lawsuit Williams filed in federal court last month.
Under the law, Williams said she and other salespeople should be classified as full-time employees and not independent contractors, said Williams’ attorney, Aubrey Sparks with Mountain State Justice.
“What happens is these companies have women act as sales people — they’re almost exclusively targeted to women,” Sparks said. “They are only paid on commission. About 95 percent of them lose money even though they are working these hours and should be getting paid.”
Williams sued Matilda Jane’s parent companies, Indiana-based MJC Acquisition LLC, and Matilda Jane LLC, and she is seeking unspecified damages.
Multilevel marketing companies
Clear cut protections for people working for multi-level marketing companies are few and far between throughout the country, Sparks said. The laws that do affect them date back to when multi-level marketing companies relied solely on door-to-door sales, before the internet and social media created another avenue of sales.
“I was surprised more people don’t know about what their legal rights might be when they’re working for these sorts of companies,” Sparks said.
The Federal Trade Commission describes multi-level marketing companies as those that sell their products through person-to-person sales.
Multi-level marketing companies work by not only selling a product, but by recruiting new sellers, according to the FTC.
Members who recruit new sellers create a “downline,” and take a percentage of that downline’s profits.
“...legitimate multi-level marketing relies on product sales for the business to succeed, whereas illegal pyramid schemes rely on recruitment to create profit up the chain,” according to the commission’s website.
In California, Gov. Gavin Newsom on Sept. 18 signed a bill that requires companies to designate workers as employees instead of independent contractors “if a company exerts control over how they perform their tasks or if their work is part of a company’s regular business,” according to a Los Angeles Times report.
California’s law will apply to app-based companies and largely was geared toward affecting employees who work for ride share services including Uber and Lyft, according to the L.A. Times story.
This week, the Federal Trade Commission fined AdvoCare International, a multi-level marketing dietary supplement company, $150 million, according to a news release from the FTC.
In 2016, 72.3 percent of AdvoCare distributors did not earn any compensation from AdvoCare, according to the release.
“Legitimate businesses make money selling products and services, not by recruiting,” said Andrew Smith, director of the bureau of consumer protection for the FTC. “The drive to recruit, especially when coupled with deceptive and inflated income claims, is the hallmark of an illegal pyramid.”
Williams v. Matilda Jane
Williams said she became a “Trunk Keeper” for Matilda Jane in March 2018. “Trunk Keeper” is a term Matilda Jane uses to refer to its salespeople.
Williams worked for Matilda Jane for six months and spent $8,000 to purchase samples and business supplies as required by the company, according to the lawsuit. She earned a total of $1,000 in wages.
During that time, Williams worked full-time hours to sell clothing and keep records in line with Matilda Jane’s policies.
Those policies do not ask salespeople to keep track of the hours they have worked, but they do require employees keep track of sales records, according to the lawsuit.
Matilda Jane is a privately-held company, and its annual revenue and sales figures are not publicly available.
Matilda Jane “Trunk Keepers” only earn money from commission of their sales and when they recruit other “Trunk Keepers” to sell Matilda Jane products, according to the lawsuit.
“They cannot increase in rank without recruitment, regardless of the volume of sales they make to consumers,” Sparks said in the lawsuit.
The company classifies salespeople as “independent contractors” under the Fair Labor Standards Act, but they should be classified as full-time employees under the law’s definition, according to the lawsuit. Under that classification, the employees would qualify for minimum wage for the time spent coordinating sales of Matilda Jane products.
“[Matilda Jane] created a system in which salespeople had very little control over the manner in which they were to sell Matilda Jean products,” Williams said in the lawsuit. “[Matilda Jane] controlled who salespeople were permitted to sell to, what they were permitted to sell, and how they sold [Matilda Jane] products.”
Williams’s case has been assigned to U.S. District Judge Robert Chambers in Huntington.
The Gazette-Mail reached out to Matilda Jane for comment, but had not received a response to the lawsuit Tuesday.