Pennsylvania Maintains Broad Definition of "Agent" in Marketing Rules, In Order to Maintain Oversight of Multi-Level Marketing

The Pennsylvania PUC denied rehearing seeking a narrower definition of the term "agent" in marketing rules applicable to retail electric and natural gas suppliers, in large part because the PUC fears the more specific definition sought by retail suppliers could be read to exclude multi-level marketing agents.

Under the final rule, "agent" is defined as, "A person who conducts marketing or sales activities, or both, on behalf of a licensed supplier or suppliers. The term includes an employee, a representative, an independent contractor or a vendor. It also includes subcontractors, employees, vendors and representatives not directly contracted by the supplier who conduct marketing or sales activities on behalf of the supplier."

Retail suppliers had sought clarification that the term agent only applies to persons who (a) are authorized to contractually bind the supplier; and (b) are compensated by the supplier for the referral, enrollment or servicing of a customer.

The PUC rejected the sought clarification, and maintained the original definition.

"A possible hazard with incorporating the language, 'have received compensation, in any form, from the supplier' within the definition of “agent” as requested by RESA/PEC is the possible creation of an exception for some forms of multi-level marketing. In some multi-level structures, a supplier could argue that the agents are not compensated by the supplier -- that their compensation instead comes from the agent's sub-agents (money flowing up the multi-level structure; not down from the supplier at the top of the structure). This could create a sizable exception in the applicability of these regulations. It is very possible that sales agents in a multi-level structure would still engage in many, if not all, of the same activities as any other agent in a more traditional structure. This includes engaging in door-to-door contacts. The concerns with public safety, appearance, misrepresentation, verification and everything else addressed in the regulations are no different with a multi-level agent than with an agent in a traditional structure. There is no sound public policy basis, especially from a public safety perspective, for excluding an agent from these rules simply because the agent is part of a multi-level marketing structure," the PUC said.

"We understand the concerns expressed by some suppliers over their ability to monitor and enforce requirements upon a network of multi-level agents. However, we believe that a supplier who decides upon utilizing such a sales structure must also assume the greater oversight burden that may be needed to effectively monitor such a sales network. Every marketing method and structure has varying benefits and burdens that a supplier must weigh when considering what methods to utilize. In this case, a multi-level structure should not be treated any differently than any other structure," the PUC said.

"As we noted in the Final Order, we acknowledge that there are many different marketing structures currently in operation and unforeseen structures that could appear in the future. We also noted, and will do so again, that if an individual is merely presenting a supplier offer to members of an 'affinity group' he or she belongs to or to those they have a personal relationship with, then it is not our intent to treat those individuals as “agents.” In this situation, background checks, training, uniforms, identification, etc. are unnecessary and impractical. However, if instead the individual is acting on behalf of a supplier or suppliers, and goes outside the group he or she is a member of or outside of personal relationships – then the concerns with public safety, misrepresentation, identification, etc. become relevant, and that individual is now likely an 'agent.' Again, we acknowledge that there may be scenarios where the applicability of these definitions and regulations may not always be clear. We once again ask all market participants to use good faith and reason when confronted with such situations, and to seek the guidance of Commission staff if needed," the PUC said.

"It is challenging to create a definition of 'agent” that will appropriately encompass what is desired in the context of an evolving marketplace that will continue to present us with new and unforeseen sales and marketing structures. Based on the comments of the parties and the public safety concerns involved, we believe that a broad definition of 'agent,' one that risks erring on the side of being over-inconclusive, is preferable to a narrower definition that risks omitting from applicability those we believe should be included," the PUC said.

"We find it persuasive that the consumer advocates, who had originally opposed door-to-door sales altogether, are satisfied with this definition of agent," the PUC said.

The PUC also denied modifications to the rule requiring criminal background checks for persons conducting, "door-to-door sales and marketing activities"

Docket No. L-2010-2208332