Members of Herbalife Ltd.’s sales force settled a class action lawsuit that accused their employer of operating a pyramid scheme and engaging in deceptive trade practices.
According to recent report on Law360 (subscription required), although Herbalife claims the action was meritless, it agreed to pay up to $15 million to the class members and up to $2.5 million for the cost of returned products the salespeople purchased.
Herbalife is a multilevel marketer that sells products to its sales force who then sell directly to customers. Herbalife distributors retain a portion of the profits and also make money if they recruit others to become sales representatives. U. S. District Judge Beverly Reid O’Connell agreed that Herbalife’s business model fits the definition of a pyramid scheme when she refused to dismiss the class action last year.
Like other sales reps, lead plaintiff Dana Bostick claimed he spent nearly $3,000 to purchase Herbalife products, set up websites, and for coaching and recruiting sessions. Mr. Bostick alleged that 88 percent of the company’s nearly 500,000 U.S. distributors failed to make any money, and claimed that Herbalife violated California laws prohibiting “endless chain” schemes, unfair competition, and false advertising.
The attorneys in Sommers Schwartz’s Complex Litigation Group have been involved a variety of deceptive trade practice, employment, and class action lawsuits. If you have questions regarding your rights as a consumer or as an employee, call us today.