Herbalife Case Summary

Decent Essays
Facts: Herbalife is an American corporation that creates, markets, and sells nutritional supplements. The corporation’s business configuration utilizes independent contractors who earn profits though a multi-level marketing compensation structure. In 2016, the Federal Trade Commission filed a complaint against Herbalife, accusing the international brand of using deceptive business practices. The FTC claimed that Herbalife mislead consumers about how much profit they could actually make by selling the brand, and added that “most Herbalife distributors make no money at all”. Rather than dubbing Herbalife a pyramid scheme, the FTC allowed the company to continue operations but ordered it to pay $200 million in compensatory damages, to be distributed…show more content…
The FTC will look to see if Herbalife practiced in deceptive advertising, which means that consumers were led to act in a certain way by the presentation of less-than-accurate information. Regardless of whether or not Herbalife intended to deceive its distributors, “consumer protection statues do not require proof of intent”, and in order to be found liable, Herbalife would have had to “enter into the type of transaction in which the injured consumer was…show more content…
The answer to that is yes; the independent contractors lost over $200 million due to their relationship with Herbalife. As part of Herbalife’s marketing strategy, distributors would not only sell the products, but would also recruit new distributors to buy the products. Due to the large influx of distributors, and little-to-no market for the nutritional supplements, the contractors cannot make any money and are forced to leave the company in massive amounts. The FTC alleged that Herbalife misled consumers to believe that they could make a living off of selling their products, which is far from the truth. It was found that Herbalife distributors made barely any money at all, that is if they did not lose money. Any reasonable person would not have invested into the Herbalife franchise if they knew that they would have a very hard time making a profit. Herbalife would have to also change the way they compensate their employees, and rather pushing them to sign up new distributors, aid them in selling the products and creating long-lasting customers. Under the FTC Act, this is considered an unfair business practice as it forces consumers to find other consumers to buy the products wholesale in order to meet their quotas. Overall, it is clear the Herbalife violated consumer protection statues by falsely advertising the success of its independent contractors,
Get Access