An abrupt policy change at LuLaRoe was one factor that led employees to file a class-action suit against their employer. In addition to shady business practices in general, the suit alleges that LuLaRoe is no more than a pyramid scheme.
Details of the Case
LuLaRoe is a direct sales clothing trademark whose sales people claim that they were deceived when the return policy for inventory changed without notice. Originally, employees were told that they could return unsold inventory for a total refund if they chose to leave the company. Inexplicably, that policy changed, reducing the refund from 100% to just 90%, and the company added a number of restrictions to returns. This alarmed employees, who had to purchase $5,000 worth of products when they signed up. The company, not the person responsible for selling clothing, chose all items sent to employees, leaving some with inventory that they might not have chosen and that might have been difficult to sell. Additionally, with over 80,000 sellers working for the company, four out of five sales people were unable to sell their entire inventory within a month, resulting in shortfalls averaging over $1500 monthly. Plaintiffs who had joined the company hoping to make some money, and comfortable with the no-risk endeavor, were suddenly stuck with financial tensions they had not anticipated at the get-go. Within a month of the policy change, these sales people filed suit against the company, claiming misleading advertising, breach of contract, misconduct, and unfair business practices.
Is it a Pyramid Scheme?
Recruiters who drafted fellow employees into the company and who sold large amounts of LuLaRoe clothing were eligible for promotions and bonuses. Plaintiffs claim that this structure contains the trademarks of a pyramid scheme.
Pyramid schemes are based on some key principles:
- Income is based primarily obtaining new recruits, not on actual sales;
- Purchasing high amounts of inventory is a requirement of the job;
- Those purchases include items you do not necessarily choose or want;
- There is a high probability of losing money.
If You Suspect a Pyramid Scheme
Pyramid schemes tend to scam unsuspecting people out of a lot of money, often totaling in the millions, or even billions of dollars. Multi-level marketing operations can look like a good investment, but you should ask some key questions to establish their legitimacy before getting involved:
- Will your income be determined as a result of your sales, or will you be expected to do recruiting for the company as a key responsibility?
- Are you being promised a rags-to-riches scenario, or are you anticipating slow, sustained economic growth?
- What is your expected initial investment, and what guarantees are there for inventory you are unable to sell?
The fact is, pyramid schemes are illegal. People at the top may make a killing, while everyone else loses everything. If you have become involved in one of these, it may be wise to seek legal counsel sooner rather than later. Contact the experienced legal team at HKM for a consultation today.
