### Amway: The Untold Story

## Intent To Continue and Business Support Materials Arbitration Agreements

Your friends at Amway | You

Amway long ago acknowledged that the tools business is illegal and unethical, that distributors are being seriously abused, and also that Amway has been unsuccessful in controlling these problems. Until recently, Amway could count on the relative secrecy of the many lawsuits and distributor complaints it has had to deal with. With the advent of the internet and web sites like this one, however, that situation has changed dramatically; Amway's dirty laundry is now aired in public, and each new lawsuit brings additional embarrassment and makes it more difficult for Amway to deny the facts.

As part of the settlement of the Hanrahan class action lawsuit, Amway enacted additional rules that were supposedly aimed at curbing the tools abuses. Rules, of course, are useless unless enforced. Amway has had rules in place since long before the Hanrahan lawsuit, and it could not be more clear that these rules are unenforced and/or ineffective. Amway's own corporate counsel have, in fact, admitted in an interview with a Baton Rogue Advocate reporter that Amway does not even enforce the critical "retail selling" rule that supposedly makes Amway a legitimate business rather than another illegal pyramid scheme, and went on to state that the FTC "does not require Amway to monitor compliance with this [the retail selling rule] or any other rule." We can only assume that "any other rule" would include rules regarding the representation and sale of Business Support Materials.

Amway has, however, taken at least one tough and uncompromising step towards solving its problems. Unfortunately for its distributors, that step was not to finally protect them from being swindled and abused, but to prevent further damaging public embarrassment to Amway Corp. and the AMO "Tools Kings." Starting in 1998, Amway instituted mandatory arbitration agreements for anyone starting or renewing a distributorship, and for any distributor who purchases BSM (Business Support Materials). Simply put, anyone who now wants to be an Amway distributor must give up his or her right to file a lawsuit against Amway Corp. or his or her upline, and to instead agree to settle any disputes through a binding arbitration process. It's important to understand that Amway is not offering its distributors a choice of how to resolve disputes...it is taking that choice away from them. As if that weren't bad enough, distributors are also prevented from discussing the particulars of complaints that go to arbitration, or even from divulging the outcome of that process.

If you think I'm being overly dramatic when I say that this agreement violates the constitutional rights of Amway distributors, consider that the ACLU has already filed suit against two companies in California that force similar "agreements" on their employees...if they want to keep their jobs, they have to give up their right to sue their employers.

> "Most of us need to work, " said David Schwartz [no relation], Senior Staff Counsel of the ACLU of Southern California. "Employers are taking unfair advantage of that fact by bullying employees into giving up rights in exchange for getting or keeping their jobs.

> "When an employee finds he or she has a claim, suddenly it hits them that they can't take their employer to court," Schwartz said. "It's grossly unfair for companies to force employees to check their constitutional rights at the office door."

Amway distributors may not be "employees" of Amway, but what really is the difference between firing an employee who relies on his or her income, and "firing" a distributor who has invested time and money in his or her distributorship and relies on income from that distributorship? What if that distributor is one of the few who manages to make a full-time income from an Amway distributorship? It certainly seems to me that Amway is likewise bullying distributors into giving up their rights in exchange for keeping their distributorships.

So who is really being protected by this agreement? Amway claims that it instituted these agreements for the benefit of its distributors, out of the kindness of its corporate heart. An announcement in the 8/8/97 Newsgram offers this explanation:

> "This change incorporates an agreement to arbitrate all distributor disputes relating to the Amway business, including issues involving the Sales and Marketing Plan and Rules of Conduct. Arbitration is a process of dispute resolution by which an independent third party, known as an arbitrator, listens to both sides of a dispute and then renders a final and binding decision. Arbitration can be a very effective way to quickly resolve any disputes which cannot be resolved by Amway's Conciliation process. In addition, arbitration is usually much faster and less costly than a lawsuit."

And in an announcement posted on the Amway Business Network in October of 1998, Amway further states:

> "On Oct. 15, the court agreed with Amway, closed the cases [Morrison, Musgrove and Pruitt] and sent the parties to arbitration to resolve their disputes as required by their distributorship agreements. Amway believes this is a victory for all Amway distributors. It confirms that the conciliation and arbitration procedures spelled out in the Amway Rules of Conduct are the best and the only way for distributors to work out any disagreements quickly, fairly and inexpensively.

> "It is also an excellent example of how Amway and the ADA Board, which represents all Amway distributors, continue to work together to make this the best opportunity anywhere."

As previously noted, Amway is not offering arbitration as a choice. Amway apparently has little faith in its professed belief that arbitration is "the best and the only way for distributors to work out any disagreements quickly, fairly and inexpensively." If it truly were, most distributors would gladly take that option over filing a lawsuit. So why doesn't Amway offer distributors a choice instead of forcing them into arbitration? And even if arbitration were the better approach, why does Amway further gag distributors to prevent them from discussing their disputes or the resolution of those disputes?

There is no argument (on my part, anyway) that arbitration may sometimes be the less expensive and troublesome way to go. But what if a distributor, after considering the various factors involved, decides that it is not? What if a distributor decides that he or she is willing and able to spend the time and money on a lawsuit? Shouldn't that distributor be able to make that choice? Amway says no, and the reason could not be more obvious: lawsuits are a matter of public record, but arbitration proceedings are not. Even when a lawsuit is filed, Amway employs various means to keep as much information as possible from the public, typically by making gag orders a part of any settlement agreements. Amway cannot, however, hide all the evidence of a lawsuit, as some of the documents will always be a matter of public record. If Amway can force distributors into arbitration, however, it gags them much more effectively than it could in a lawsuit. This is what Amway insultingly tries to fob off as "a victory for all Amway distributors." Well, it's at least a victory for those distributors at the top of the pyramid who run and profit from the tools business, isn't it?

Distributors who are signing up for the first time can decide for themselves if they want to voluntarily give up their rights in order to pursue the Amway business. But what about distributors who have already put a great deal of time and money into building a business that they do not want to give up? A business that Amway promised them was "their business"? Their only choice, it would seem, is to give up their rights or give up their business, even though they had never agreed to do any such thing when they originally signed up. What kind of "choice" is that? It's important to also note that the ADA board, which supposedly represents the average distributor, is made up of the very high-level distributors who reap enormous profits from selling tools to those distributors, who are the targets of frequent distributor lawsuits, and who stand the most to gain from keeping the tools business running as usual.

It should also be noted that Amway's ABN announcement contains a glaring lie. The court's decision regarding the Texas lawsuits did not "confirm that the conciliation and arbitration procedures spelled out in the Amway Rules of Conduct are the best and the only way for distributors to work out any disagreements quickly, fairly and inexpensively." The issue before the court was not whether or not the distributors would be best served by Amway's arbitration agreement, but simply whether or not they had agreed to abide by it; obviously it was the court's decision that they had.

Intent to Continue Form

I intend to continue my distributorship in 1998. Please send my 1998 Amway Distributor Authorization. I agree to conduct my business according to the Amway Code of Ethics and Rules of Conduct, as they are amended and published from time to time in official Amway literature. I will also comply with all sales tax agreements (and their rules and procedures) between Amway Corporation and various cities, states, and municipalities. I agree that this authorization does NOT make me an employee, agent or legal representative of Amway Corporation, my sponsor, or my Direct Distributor. I further promise that I will not sell any Nutrilite© products until I read the Distributor Responsibility Statement, which is set out in both the Start Smart Guide and the Merchandising Manual (SA-11), and agree to make no representations about such products which are not sanctioned in official Amway literature. I further agree that, with respect to any services performed by me for Amway, I will not be treated as an employee with respect to such services for federal, state, or local tax purposes.

BUSINESS SUPPORT MATERIALS - I understand that Business Support Materials ("BSM") such as books, magazines, audio and videotapes, support tools, or tickets to motivational or business-building seminars and rallies may be available for purchase. I understand that the purchase of such products and services is always optional. The decision whether to purchase any BSM is entirely up to me. In making this decision, I will use my own good judgement as to what is best for my independent Amway business. Some distributors earn income from the sale of BSM apart from their earnings as Amway distributors. I acknowledge that I have received and read a copy of the Business Support Materials Arbitration Agreement. If I decide to purchase BSM, I understand I should execute the Agreement to Arbitrate attached thereto.

AGREEMENT TO ARBITRATE - I agree that I will give notice in writing of any claim or dispute arising out of or relating to my Amway distributorship, or the Amway Sales and Marketing Plan or Rules of Conduct to the other party or parties, specifying the basis for my claim and the amount claimed or relief sought. I will then try in good faith to resolve the dispute using the Amway Conciliation and Enforcement Procedures contained in the Rules of Conduct for Amway distributors.

If the claim or dispute is not resolved to my satisfaction within 90 days, or after the Amway conciliation process is complete, whichever is later, I agree to submit any remaining claim or dispute arising out of or relating to my Amway distributorship, the Amway Sales and Marketing Plan, or the Amway Rules of Conduct (including any claim against another Amway distributor, or any such distributor's officers, agents or employees, or against Amway Corporation, or any of its officers, directors, agents or employees) to binding arbitration in accordance with the Amway Arbitration Rules, which are set forth in the Amway Business Compendium. The arbitration award shall be final and binding and judgement thereon may be entered by any court of competent jurisdiction. Demand for arbitration shall be made within two years after the issue has arisen, but in no event after the date when the initiation of legal proceedings would have been barred by the applicable statue of limitations. I acknowledge that this Agreement evidences a transaction involving interstate commerce. The United States Arbitration Act shall govern the interpretation, enforcement, and proceedings pursuant to the arbitration provisions.

I agree that if I become involved in a claim or dispute under the Amway conciliation process or the Amway Arbitration Rules, I will not disclose to any other person not directly involved in the conciliation or arbitration process (a) the substance of, or basis for, the claim; (b) the content of any testimony or other evidence presented at an arbitration hearing or obtained through discovery; or (c) the terms or amount of any arbitration award.

Business Support Materials Arbitration Agreement ("BSMAA")

Please read carefully the Disclosures and Arbitration Agreement that follows before signing. The Disclosures section contains important information about buying or selling independently produced Business Support Materials, and the Agreement section affects your legal rights.

YOU DO NOT HAVE TO BUY BUSINESS SUPPORT MATERIALS TO BE AN AMWAY DISTRIBUTOR

THIS AGREEMENT SHOULD BE SIGNED BY EACH AMWAY DISTRIBUTOR WHO CHOOSES TO PURCHASE INDEPENDENTLY PRODUCED BUSINESS SUPPORT MATERIALS FROM, OR SELL SUCH MATERIALS TO, ANOTHER AMWAY DISTRIBUTOR. THE AGREEMENT DOES NOT DETERMINE PRICE, QUANTITY, OR SELECTION-THOSE ARE INDIVIDUAL DECISIONS- BUT IT OBLIGATES BUYERS AND SELLERS TO OBEY AMWAY'S BUSINESS SUPPORT MATERIALS RULE, AND IT PROVIDES FOR MEDIATION AND COMPULSORY BINDING ARBITRATION OF ANY DISPUTES.

DISCLOSURES ABOUT INDEPENDENTLY PRODUCED BUSINESS SUPPORT MATERIALS

Under the Amway Sales and Marketing Plan, all Amway distributors are responsible for training and motivating those whom they sponsor. To assist you with your own training and motivation, as well as training and motivating others, some distributors produce and distribute Business Support Materials and support services independently of Amway Corporation ("independently produced Business Support Materials or Business Support Materials"). These may include books, magazines, and other printed materials, audio tapes, video tapes, rallies, meetings, and educational seminars. While these Business Support Materials are not required by or produced by Amway Corporation, you may decide that they can play a useful role in building a profitable Amway business. However, you should carefully consider each of the following factors before purchasing any Business Support Materials.

1. Limiting Expenditures. You should carefully monitor your purchases of Business Support Materials so that such expenditures do not become excessive. The cost of purchasing tapes and books and the expenses incurred in attending seminars, rallies, and other meetings must be justified by their benefit to your Amway business. You should only purchase items or attend functions that provide information helpful to you in merchandising AMWAY products and sponsoring others to do the same.
2. Limiting time commitments. You must decide how much time (if any) you want to spend attending motivational and training functions and listening to tapes. You should carefully consider the impact of this time on your occupation, your other Amway-related activities, and your family.
3. Compliance with Amway's Rules of Conduct The Rules of Conduct for Amway Distributors contain important provisions affecting the purchase, sale, and use of Business Support Materials. These Rules are contained in the Amway Business Compendium which is found in your AMWAY Business Kit. Before purchasing Business Support Materials or furnishing them to others, you should be thoroughly familiar with these rules and guidelines. Business Support Materials not published by Amway Corporation are not substitutes for official Amway literature or sales and training aids.

PURCHASE OF BUSINESS SUPPORT MATERIALS AND SERVICES IS STRICTLY VOLUNTARY. NO ONE MAY REQUIRE, OR IN ANY WAY PRESSURE YOU TO BUY OR USE SUCH ITEMS.

4. Amway does not require you to buy Business Support Materials, and neither can anyone else. You should purchase Business Support Materials only if you decide they assist you in building a more successful and profitable Amway business. If you sponsor others, you have an obligation to train and motivate them whether or not they choose to buy Business Support Materials. All Distributors are free to change their volume of purchases of such items, to cancel standing orders, or to cease such purchases at any time without threats, pressure, or retaliation.
5. Cross-line selling. You are free to buy or obtain Business Support Materials for your own use, or for resale, from any supplier you choose. Amway's rules prohibit distributors from soliciting sales of independently produced products and services, including Business Support Materials, to Amway distributors the seller does not personally sponsor.
6. Offered independently of Amway Corporation. Independently produced Business Support Materials are offered independently of Amway Corporation and have not been endorsed or approved by Amway Corporation. Business Support Materials should be clearly labeled to show they do not come from Amway. Distributors who choose to sell Business Support Materials must make it clear to their customers that such materials are produced and sold independently of Amway.
7. Profit to sellers. Some distributors who sell Business Support Materials may purchase these items at wholesale prices and resell them for a profit, and speakers at meetings and functions may be paid for their appearance.
8. Refund Policies. Independently produced Business Support Materials are not covered by the Amway Corporation Satisfaction Guarantee or Buy-Back Rule. However, Amway's Rules of Conduct and this Agreement require the seller of Business Support Materials, upon request, to buy back Business Support Material on commercially reasonable terms for a period of 180 days from the date of purchase. Items shall be returned to the Distributor from whom they were purchased, or other designated party, with proof of purchase. For seminars, rallies, and other meetings, the selling distributor is obligated to repurchase tickets on a satisfaction guaranteed basis purchased for the buyer's personal use for a period of 30 days after the event. Such buy-back applies only to that portion of the cost of the affair related to the meeting, i.e. not to the cost of travel, meals, or hotel accommodations. Find out about this policy before you decide to buy.
9. No guarantee of results. Your success as an independent Amway distributor depends on your own hard work. No one can promise or guarantee that the use of any specific method, approach, or sales aid will result in a more profitable Amway Distributorship or the achievement of any specified level of success in the Amway business. While I understand that some distributors may earn money from selling BSM, no one has made any promises as to my own profitability. No one can guarantee that the techniques, attitudes, or approaches suggested in the Business Support Materials will work for you, and you must never make any such claim in selling Business Support Materials to others.
10. Only items specifically authorized by Amway Corporation for use with prospects may be sold, loaned, shown, or given to a prospect The Rules of Conduct for Amway Distributors, which are contractually binding on all Amway Distributors, prohibit the use of any recruiting literature (including audio and video tapes) not produced or authorized by Amway Corporation in any phase of the recruiting process. [Note: this sentence previously read "not produced and authorized by Amway Corporation in any phase..." That was incorrect. My apologies for any confusion.]

AGREEMENT TO ARBITRATE DISPUTES

Disputes; Conciliation. The undersigned parties agree that if a dispute arises out of or relates to Business Support Materials, the claiming party shall give notice of the claim in writing to the other party or parties. The notice shall specify the basis for the claim and the amount claimed or relief sought. During a period of not less than 90 days after the written notice is received, the parties shall attempt to resolve the dispute amicably through direct discussions, and, if appropriate, using the Amway Conciliation and Enforcement Procedures, as set forth in the Rules of Conduct for Amway Distributors.

Binding arbitration. At least 90 days after the notice referred to in the paragraph above is received, or after the conclusion of the Amway conciliation process, whichever is later, any remaining controversy or claim, including any claim a party to this Agreement may make against any publisher, author, speaker, distributor, manufacturer, seller, reseller or marketer of Business Support Materials, or against Amway Corporation or any of its officers, directors, agents or employees, shall be settled by binding arbitration in accordance with the Amway Arbitration Rules contained in the Rules of Conduct for Amway Distributors, and judgement upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Demand for arbitration shall be made within two years after the issue has arisen, but in no event after the date when the initiation of legal proceedings would have been barred by the applicable statute of limitations. The parties acknowledge that this Agreement evidences a transaction involving interstate commerce. The United States Arbitration Act shall govern the interpretation, enforcement, and proceedings pursuant to the arbitration provisions.

Confidentiality. Once a notice of claim has been sent, the dispute resolution process, including conciliation and any binding arbitration, shall remain confidential. No party to the claim shall disclose to any person not directly involved in the conciliation or arbitration process (a) the substance of, or basis for, the claim; (b) the content of the testimony or other evidence presented at an arbitration hearing or obtained through discovery; or (c) the terms or amount of any arbitration award.

I HAVE CAREFULLY READ AND UNDERSTAND THE BUSINESS SUPPORT MATERIALS ARBITRATION AGREEMENT, AND IN EXCHANGE FOR THE RIGHT AS AN INDEPENDENT AMWAY DISTRIBUTOR TO BUY, SELL, DISTRIBUTE, RECEIVE, AND USE BUSINESS SUPPORT MATERIALS, AGREE TO ABIDE AND BE BOUND BY THE TERMS SET FORTH HEREIN AND TO ARBITRATE ANY DISPUTES UNDER THE AMWAY ARBITRATION RULES.