About “Agents”

I represent direct selling companies with a multilevel form of compensation. By definition, all of my clients have chosen independent contractor representatives as their channel of distribution.

I advise ALL of my clients to NEVER call their independent contractor representatives “agents,” or to use the word “agent” in combination with other words in the name they give to their representatives. The reason is simple: The legal meaning of “agent” in the United States is a person authorized to act for and speak for the principal, and with the power to BIND THE PRINCIPAL. Direct selling companies DO NOT want to empower their independent contractor representatives to be able to bind them or obligate them in any way. One example: A representative rents a meeting room at the Holiday Inn and does not pay the bill. The Holiday Inn accounting department has a copy of the representative’s business card in the file. If it says “independent contractor,” or words to that effect, they know they can only go after the person for non-payment. If the business card says “agent,” they know they can go after the company, because the “agent” has the power to bind the Company.

The above scenario gives you the legal reason behind the policy restrictions on business cards and letterheads. The specific use of the word “agent” is actual authority. “Implied authority” must also be avoided. Therefore, on imprinted business cards and letterheads, XYZ distributors are not permitted to incorporate into their own business card or letterhead any XYZ graphics, trade names, or trademarks. Only the approved XYZ graphics version and wording are permitted, and letterhead must be ordered either from XYZ directly or from an XYZ approved source.

The same rationale applies to imprinted checks: XYZ distributors are not permitted to use the XYZ trade name or any of its trademarks on their business or personal checking accounts. However, distributors may imprint their XYZ business checks as being an “Independent Distributor of XYZ products.”

The “agent” issue—actual authority and apparent authority—is the reason behind the restrictions on how an independent contractor answers the telephone: Distributors may not answer the telephone by saying “XYZ,” or in any other manner that would lead the caller to believe that he or she has reached the corporate offices of XYZ.

The “agent’ issue is also behind the restriction on telephone book yellow and white page listings: Distributors are not permitted to use the XYZ trade name in advertising their telephone and fax numbers in the white or yellow page section of the telephone book.

Bottom line: In this industry—actually, a channel of distribution called direct selling through independent contractor representatives—avoid the word “agent,” and avoid granting or permitting the use of apparent (agent-like) authority. When in doubt, consult an attorney for guidance.