FTC Targets Work-at-Home Programs and Announces Approval of Update and Revisions to Business Opportunity Rule

The Federal Trade Commission has been active recently in pursuing business opportunity sellers that market work-at-home opportunities.  In the last month, the FTC announced a settlement with companies that purported to be deceiving consumers by marking false online promises while selling work-at-home opportunities.  The FTC also announced recently that it has approved changes to its Business Opportunity Rule, which outlines disclosure requirements that business opportunity sellers must provide to prospective buyers.

Recently, the FTC announced a settlement with Abili-Staff Ltd. and Equitron LLC (among others) over alleged false promises to consumers regarding work opportunities.  Federal Trade Commission v. Abili-Staff Ltd., et al., Civil Action No. 5:10-cv-000088 (W.D. Tex., December 7, 2011).  The FTC alleged that Abili-Staff and Equitron falsely promised consumers that, for a fee of up to $89.99, consumers would have access to job listings and would get a full refund if the consumers did not get a job.  The FTC stated that it brought the action "as part of its ongoing efforts to protect financially strapped consumers from scams that falsely promise job opportunities." As part of the settlement, approximately $729,700 is being refunded to consumers (average payment of $9.70).

The FTC also announced that changes to the Business Opportunities Rule have been approved, with the Final Rule becoming effective on March 1, 2012.  The Business Opportunities Rule applies broadly to all "commercial arrangement[s]" and includes all opportunities where:  "(1) [a] seller solicits a prospective purchaser to enter into a new business; (2) [t]he prospective purchaser makes a required payment; and (3) [t]he seller, expressly or by implication, orally or in writing, represents that the seller or one or more designated persons will (i) [p]rovide locations for the use or operation of equipment, displays, vending machines, or similar devices, owned, leased, controlled, or paid for by the purchaser, (ii) [p]rovide outlets, accounts, or customers, including, but not limited to, Internet outlets, accounts, or customers, for the purchaser's goods or services, or (iii) [b]uy back any or all of the goods or services that the purchaser makes, produces, fabricates, grows, breeds, modifies, or provides, including but not limited to, providing payment for such services as, for example, stuffing envelopes from the purchaser's home."  16 CFR § 437.1(c) (defining business opportunity).

Most notably, the Final Rule requires business opportunity sellers to give consumers streamlined and specific disclosures to help purchasers evaluate the purported business opportunity, including:

(1) the seller's indentifying information (name, business address and telephone number, name of the salesperson offering the opportunity, and the date when the disclosure document is furnished to the prospective purchaser);

(2) whether the seller makes a claim about the purchaser's likely earnings (and, if the seller does, then the seller must provide information supporting any such claims);

(3) whether the seller, its affiliates or key personnel have been involved in any civil or criminal actions for misrepresentation, fraud, securities law violations, or unfair or deceptive practices, including any violations of the FTC Rule, within 10 years preceding the date that the business opportunity was offered (and provide a list of any the actions);

(4) whether the seller has a cancellation or refund policy (and, if it does, a separate document stating the material terms of such policy); and

(5) a list of persons who bought the business opportunity in the previous three years (if more than 10 purchasers, then the name, state and telephone number of at least 10 purchasers within the past three years who are located most near the prospective purchaser location).

Id. at § 437.3.  In addition, for all sales conducted in languages other than English, the business opportunity seller must provide the required disclosures in the language in which the sale is conducted.  Id. at § 437.5.

The revised Business Opportunity Rule seeks to ensure that consumers have the information that they need when considering entering into work-at-home agreements or other similar business opportunity arrangements.  Work-at-home and related business opportunities are now (and have been) an important target to the FTC.  While the new disclosure requirements in the Final Rule should make compliance easier for legitimate companies and may protect consumers against fraud, the detailed disclosure rules require a review of business practices to ensure that business opportunity sellers (and their marketing and contract claims) comply with the law.  Those selling such opportunities should have both their marketing claims and contract documents reviewed by a knowledgeable attorney to ensure that the company remains in compliance with the new requirements and the law.

About The Author

Brian Wright | Faruki Partner