Direct selling term generally stands for the direct sale and marketing of goods and services to the end user consumers, outside of a retail store. Different methods can be used in direct sale, such as one-on-one demonstrations, showing catalogues, organizing marketing parties, etc. which recently includes internet marketing as well.
Direct selling offers a number of advantages to both parties of a sales transaction and ultimately for the growth of the economies of the states. It is a fact that direct selling supports participation of women in business life and according to the figures1 collected in cooperation with the World Federation of Direct Selling Associations, over 12 million people are active in direct selling in Europe out of which 80% are women. Needless to say, direct selling sector provides great flexibility for the people involved, especially in terms of working hours and locations and this is one of the main reasons why women who are expected to run a family and desire to participate in business life at the same time can easily become part of this huge sector.
Obviously, one of the main advantageous aspects of the direct selling method is the ability that it provides for making a living or even making substantial profits with really small investments and low risk. As a result, people participating in business life through direct sale method simply commit themselves pro rata the time, money and effort that want to put on the table for their professional life.
How About the Legal Environment in Turkey?
According the Global 2013 Statistical report conducted by World Federation of Direct Selling Associations, the direct selling sector in Turkey is constantly growing2. The annual trading volume of direct selling in Turkey has reached to 1 billion 152 million dollars and the number of sellers in this sector has reached to 1 million 190 thousand in 2013 which complies with the fact that there are nearly 60 direct selling companies operating in Turkey3.
Under Turkish law, direct selling is regulated under the legislation on sales which are made outside of workplaces. In this context, direct selling is defined as the marketing system in which the sales representatives, peddlers, distributors or individuals acting under similar names regardless of whether they are working as the employees of the direct sale company or not; presents the goods and services to the consumers in their homes or without using any retail sale locations, but in any case outside of workplaces, e.g. end user's house or work place, by using single or multi-layer sales methods.
On this particular matter, the Regulation on the Agreements Made Outside of Work Places4 ("Regulation"), which is based on the Consumer Protection Law5 ("Law") is enacted on January 14, 2015 by the Ministry of Customs and Trade ("Ministry").
Before the enactment of the Regulation, direct sales activities were regulated under the Regulation on Door-to-Door Sales which was promulgated based on the former consumer protection law as abolished in 2013. So, basically upon abolishment of the former consumer protection law and enactment of the new Consumer Protection Law in 2013 subsequently afterwards, reforms on the secondary legislations had to be made as well. That is why the brand new Regulation has been enacted based on the new Consumer Protection Law. The Regulation simply sets out the procedures and principles to be applied to the agreements which must be used for the sales that are made outside of workplaces and the contractual relationships arising from the same. Although the newly introduced Regulation has been published on January 14, 2015, it entered into force on April 14, 2015 which is now quite soon.
Focusing on the Sales Made Outside of Workplaces; Which Sales Fall Within This Scope?
The scope of sales which are made outside of workplaces are strictly defined under Article 47 of the Law. In this context, the agreements which are concluded (i) with the physical presence of the parties outside of the work place, regardless of whether the proposal came from the consumer, the seller or the provider; or (ii) at the work place of the seller or the provider directly or by means of a device which used for communication from distance; immediately following the negotiation of the parties outside of the workplace where they were physically present; or (iii) during a trip as organized by the seller or the provider for promotion or sale of the products to the consumers.
Is There a License Requirement?
Well yes! In order to make sales outside of a workplace; obtaining a license from the Ministry is definitely a must. For obtaining such a license, the seller/supplier company is required to apply to the provincial directorate of the Ministry which is located in the province where its head office is located. Needless to say, the Ministry examines the application files made by the companies and checks existence of any consumer complaints before issuing the license. The licenses as granted by the Ministry are valid for 2 years as of the date they are issued and the seller/supplier companies cannot obtain a new license for a period of 1 year if their licenses are already terminated by the Ministry.
The good news is that according to Article 25 of the Regulation, it is still the supplier/seller company who must obtain the license from the Ministry to perform sales activities outside of work places, e.g. direct sale activities; and no further license requirement exists for consultants, distributors, peddlers, sales representatives etc. has been introduced under the new Regulation to such effect either.
Strict Formalities for Agreements
The Regulation provides for quite strict formalities regarding the agreements which will be signed to perform sales outside of work places. Obviously, all those requirements are applicable on direct sale agreements as well. First of all, the Regulation requires for a written agreement to be signed between the company who wants to perform sales activities outside of the workplace and the consumer. The agreement must be in writing with a particular font size and must further include the basic description of the subject product/service, the consumer's name/surname, direct seller/supplier's contact details and trade name details (and the MERSIS number, if any), price of the good/service in Turkish Lira currency including the taxes, terms and procedures for exercise of withdrawal right of the consumer (with at least 16 fonts), etc.
As a result of the motivation of the legislator to protect the consumers, the Regulation further requires that the agreement date, a confirmation that the consumer has received a copy of the agreement and that he/she has been informed on the withdrawal right (as the case may be); are written by the consumer with his/her hand writing on the agreement for evidentiary purposes.
Similar to what was required under the former pertinent legislations, the direct seller/supplier is still obliged to safe keep the agreements that it has signed as part of its activities on sales outside of work places, delivery details for each subject sale, etc. for a period of at least 3 years. Obviously this might be a practical problem for the direct sale companies, because obviously the distributors are in direct contact with the end-users to have the agreements signed by them; and not the companies. At the end of the day the companies' complying with this requirement explicitly depends on how their distributors properly submit the originals of the sales agreements and relevant documents which are signed by the end-user consumers as part of their sales activities.
Withdrawal Procedures; A big Concern both for Direct Sale Companies and Consumers...
The Regulation has introduced totally new rules on the withdrawal procedures from the sales unilaterally made outside of workplaces. Consequently, the consumers are now entitled to withdraw from their contract within 14 days for no justified reason; where such term was 7 days before the promulgation of the new Regulation.
When does the withdrawal right start and when it expires are the concerns of both sides of the sales agreement. Basically, the withdrawal period starts following the date of delivery of the product to the consumer. In case of order of goods, requiring partial deliveries or if the good to be delivered is composed of different parcels by its nature, then the duration of withdrawal right for the consumers will start from the delivery date of the last parcel of the delivery. If the agreement is signed with the consumer with respect to a good which requires constant and/or regular deliveries to the consumer, then in such case the duration for withdrawal right of the consumer will start from the first delivery date of that good.
Another rule which is promulgated by the Regulation to protect the end user consumers is that the delivery of goods by the seller/supplier company to a courier is not regarded as the "delivery of a good" in calculating the withdrawal period. The direct sellers/supplier companies are strictly prohibited from asking a payment within the 14 days period during which the consumer is entitled to exercise its withdrawal right.
The Regulation further provides for certain exceptions on the exercise of withdrawal rights by consumers due to hygienic reasons, expiry dates of products, etc.
Pyramid System Concerns; any Efforts to Eliminate Them?
As part of pyramid system concerns; under the Regulation certain activities are prohibited not only for direct sales but for all methods of sales falling within the scope of sales made outside of work places: Sales representatives, peddlers, distributors can freely leave the direct selling system without paying any fees or penalties. It is forbidden for the direct sale companies to sign contracts with potential representatives, peddlers, distributors who are below 18 or who are lack of legal capacity to act.
The direct selling companies are also prohibited from requesting any entrance fee, renewal fee, starter kit fee, kit fee, etc. to enable the potential representatives, peddlers, distributors to enter into the direct sales system or for the existing ones to maintain their place in the sales chain. Needless to say, various direct sales companies collect a figure from their distributors at the time of their engagement. On the other hand, however, this figure in practice is not regarded a starter fee or an entrance fee but an investment figure by the distributors for the starting up of their new direct sale business. In practice, because the Regulation does not provide for any distinction between those two payment definitions, the interpretation of the authorized governmental authority in this context will be important and this issue will need to be clarified in the near future -maybe even with a secondary legislation-.
Basically, the majority of gains of the parties of the direct sale system cannot be based on distribution of interests such as commission, premium, incentive, award or a payment under any name arising from introducing new individuals to the direct sale system.
Clearly, direct selling companies are prohibited to making statements indicating that their selling method gives the opportunity to become rich, or giving promises that cannot be accomplished; or forcing the parties to become a party of their sales method.
Direct selling has always been a concept which had been covered under the consumer protection laws under Turkish law and following the enactment of the new Consumer Protection Law in 2013, a brand new legislation had to be made to comply with the contents of this new Consumer Protection Law and to regulate the alternative sales methods such as sales outside of workplace, sales through distance, etc. as set out thereunder. Now that the Regulation has been enacted, direct sales rules are regulated and clarified more than ever under Turkish law.
Especially, the Regulation's explicitly drawing the borderline between direct sales and pyramid sales eliminates any grey areas which existed in practice to date.
As a result, although the Regulation is enacted, it came into effect mid-April this year. So, of course any potential practical problems/inadequacies which may arise upon implementation of the Regulation will only come to surface, once the Regulation enters into force. Needless to say, such practical problems will constitute the subject matter of other future articles in this context.
4 Regulation on the Agreements Made Out of the Working Places published in the Official Gazette dated January 14, 2015 and numbered 29236.
5 Law on the Protection of the Consumer dated November 7, 2013, numbered 6502 and published in the Official Gazette dated November 28, 2013, numbered 28835.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.