Pyramid selling (Competition Act s. 55.1)

A buyer meets this term when a franchise-like offer pays participants for recruiting others. Subsection 55.1(1) defines a scheme of pyramid selling as a multi-level marketing plan under which any one of four things is true, and subsection 55.1(2) provides that no person shall establish, operate, advertise or promote such a scheme.

The four features

• A participant gives consideration for the right to receive compensation for recruiting another participant who gives consideration for the same right
• A participant gives consideration, as a condition of taking part, for a specified amount of product, other than product bought at the seller’s cost price only to facilitate sales
• A person knowingly supplies product in a commercially unreasonable amount
• A participant supplied with product has no buy-back guarantee, or right to return product in saleable condition, exercisable on reasonable commercial terms, or is not told of the guarantee or right and how to exercise it

What to check

The Competition Bureau says pyramid selling focuses on generating profits by recruiting others, not primarily from selling products. Ask what a participant pays for and what pays the participant. Compare the franchise or independent business choice with a lawyer before paying anything.