Understand the Legal Risks.
With COVID-19/Coronavirus mandating many to stay at home, and with millions of layoffs, more businesses are selling work-from-home opportunities or coaching services (sometimes referred to as "bizop offers"). However, these types of offers can be heavily regulated by the Federal Trade Commission ("FTC").
For example, the Business Opportunity Rule is a regulation promulgated by the FTC. The FTC also enforces this rule, which generally requires the sellers of so-called "business opportunities" to give prospective buyers specific information and disclosures, such as through a disclosure document and earnings claim statement, to help consumers evaluate the opportunity and assess the risks of buying a work-at-home program or any other business opportunity. Under the rule, a "business opportunity" occurs when a seller solicits a purchaser to enter into a new business, the prospective purchaser makes a required payment, and the seller represents that the seller or another will provide locations, outlets, accounts, or customers, or buy back goods or services. Many states also have their own equivalent business opportunity rules.
In past years, the FTC has targeted online businesses under the Business Opportunity Rule. For example, the FTC and Minnesota Attorney General's Office obtained a $20.8 million judgment (which was partially suspended) against Sellers Playbook and related defendants who allegedly "lured consumers into believing that they would likely earn thousands of dollars a month selling products on Amazon." Likewise, the FTC obtained stipulated injunctions and orders against AWS, LLC and related defendants that surpassed $100 million (part of which was suspended) for selling claimed "get-rich-quick schemes" and "plug-and-play" Amazon training tools.
Moreover, even if the Business Opportunity Rule does not apply, the FTC has sued companies for misrepresenting claims about potential earnings and the possibility of refunds under the FTC Act, which prohibits unfair or deceptive acts or practices. For example, the FTC recently settled with My Online Business Education (MOBE) and related individuals, who agreed to pay more than $17 million for selling an international coaching opportunity. According to the FTC, MOBE "lured consumers [through online ads, social media, and live events] to join its online coaching program by promising a pathway to online entrepreneurship" and "falsely promised consumers that it could teach them how to start a successful online business and earn six-figure incomes working from home." Other FTC orders have added allegations of deceptive telemarketing operations and have typically banned defendants from selling business coaching services and work-at-home opportunities.
Thus, if you are selling or contemplating offering a "coaching" or "work-at-home" business opportunity, you should consult experienced legal counsel to ensure that you are complying with the FTC rules and other guidelines.
Originally published June 17, 2020
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.
