Report Topics:
1:- General Information
2:- Cooling-off Period
3:- Pyramid Schemes
4:- Multi-Level Marketing
5:- Prohibition on Products
6:- Credit Restrictions Country
7:- Money Collections
8:- Licenses
9:- Status of Direct Sellers
10:- Earnings Claims
11:- Taxes and Fees
12:- Social Security
13:- Others
General Information
UNION LAW ABC
THE LEGAL ORDER OF THE EU
The European Union is a community based on law. Through its autonomous legal order, the EU governs the economic and social lives of its Member States’ peoples.
The main sources of European Union law are the EU founding treaties that set the constitutional framework for the EU, which is then fleshed out in the Union’s interest by legislative and administrative action by the Union institutions. Law made by the Union institutions through exercising the powers conferred on them is referred to as secondary legislation, the second important source of EU law. In order to allow EU institutions to impact on national legal systems to varying degrees, a range of legal instruments have been developed. The most important of these legal instruments are regulations, directives and decisions that are all binding.
Much of European law takes the form of directives which set out general rules and objectives but leave Member States the choice as to how to attain them. Primary responsibility for applying EU law lies with the national administrations in the Member States. The transposition into national law is done by national governments and parliaments sometimes involving regional and local authorities.
The Member States must take all appropriate measures to ensure fulfillment of the obligations arising from the Treaties or resulting from action taken by the institutions of the Union. They must facilitate the achievement of the EU’s tasks and abstain from any measure that could jeopardize the attainment of the objectives of the Treaties.
The timely and correct implementation of EU law by the Member States ensures that the results intended by EU policy are attained. Late or incorrect implementation can deprive businesses and citizens of their rights. The Commission monitors the transposition of directives as well as respect of EU law more generally (regulations, decisions and EC Treaty rules). It examines complaints of breaches of EU law, initiates infringement procedures when necessary and reports on these tasks.
Application of European Union law succeeds through the courts of Member States and where the laws of member states provide for lesser rights European Union law can be enforced by the courts of member states.
Ultimately, the European Court of Justice interprets EU law to make sure it is applied in the same way in all Member States. It also settles legal disputes between Member State governments and EU institutions. Individuals, companies or organizations can also bring cases before the Court if they feel their rights have been infringed by an EU institution or a Member State.
HOW LAW-MAKING WORKS IN THE EU
The European Union has a growing field of competence. While the importance of EU policymaking is clear, it must also be born in mind that the EU works on the principle of subsidiarity, meaning that all decisions should be made as close to the citizen as possible – at local council level, regionally or at the Member State level before reaching Brussels.
Due to the fact that Member States have conferred legislative powers to the EU in certain policy fields, the importance of EU institutions has grown significantly along the years. Generally, issues that are cross-border in nature are best dealt with at EU level; for example trade, customs or international crime.
The way in which policies are made at an EU level is dictated by the various EU treaties. The three main institutions that interact in the course of the legislative procedure are the European Commission, the Council of the EU and the European Parliament.
Seen as the EU’s driving force, the European Commission represents the Community interests as a whole. The Commission consists of 28 Commissioners and some 26,179 civil servants. The Commission is effectively a civil service for Europe however it has more power than an ordinary civil service, as the Commissioners are more-or-less the equivalent of government ministers at EU level. The Commission is the sole initiator of legislative acts in the EU. However, Parliament and Council may ask the Commission to submit proposals and in a few well-defined cases other institutions may come up with proposals. Parliament (by a majority of its component Members) may ask the Commission to submit a proposal in cases where Parliament thinks EU legislation is needed to help implement the Treaties. If the Commission refuses to submit a proposal, it has to give an explanation. The Council (acting by a simple majority) may request the Commission to undertake any studies ministers consider desirable for the attainment of common objectives, and to submit to it any appropriate proposals.
The Council of the EU represents Member States in the European decision-making process. This is the institution where ministers of Member State governments discuss and approve proposals for EU laws. It co-legislates with the Parliament on legislation following the “ordinary legislative procedure” by qualified majority voting, except on taxation, social security, foreign policy, defence and operational police cooperation, which require unanimity.
The European Parliament is the only directly democratically elected body of the European institutions. Every five years each Member State holds national elections to delegate national representatives to the European Parliament. Representing the EU population, the European Parliament is a co-legislator and is the provider of the democratic supervision of the other institutions.
Essentially, it is the policy area which determines how the institutions interact to make laws. Translated to very simple terms, EU decision-making is a three-way relationship between the institutions, whereby the Commission initiates a legislative proposal which the Council and the Parliament amend and/or adopt. The Commission always defines the legal basis for the legislative proposal which refers to the founding treaties and depends on the policy area that is subject to regulation. The legal basis then defines which legislative procedure is used and what voting method is applied in the Council (qualified majority or unanimity). The majority of EU legislation is adopted through the Ordinary Legislative Procedure (formerly Co-decision). Under this procedure, the European Parliament and the Council make decisions on EU legislation jointly.
ANNEX – should only be included as links, but not parts of the main text
Sources of EU law
Secondary law
ADDRESSEES EFFECTS
REGULATION All Member States, natural and legal persons Directly applicable and binding in their entirety
DIRECTIVE All or specific Member States Binding with respect to the intended result. Directly applicable only under particular circumstances
DECISION Not specified All or specific Member States; specific natural or legal persons Directly applicable and binding in their entirety
RECOMMENDATION All or specific Member States, other EU bodies, individuals Not binding
AVIS All or specific Member States, other EU bodies Not binding
Not specified
INTRODUCTION Direct Selling Legislation in the EU
The Ordinary Legislative Procedure
The current introductory section aims to provide a general idea of the legislation governing the most important aspects of direct selling, followed by a section enlisting and summarizing the main directives affecting the industry.
Firstly, the Right of Withdrawal. After entering into force of the European Consumer Rights directive on 13 June, 2014, which is a maximum harmonization Directive, the right of withdrawal has been extended to 14 days. According to the Directive, the consumer shall have a period of 14 days to withdraw from a distance or off-premises contract, without giving any reason, and without incurring any costs (Article 9, CRD).
Unlike in the USA, there is no specific legislation governing Multi-Level Marketing in the European Union, however, some Member States have laws regulating this business model. Nevertheless, the Unfair Commercial Practices Directive (2005/28/EC) provides for the ban of pyramid promotional schemes defined as schemes “where a consumer gives consideration for the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products.” Furthermore, the European Court of Justice came up with the definition of the pyramid scheme in its decision of “4finance” published in April, 2014 (Case C 515/12). According to the Court, in order to be recognized as pyramid the scheme has to meet two conditions:
1. The consumer is charged for participation (in any amount, no matter how small) in exchange for the possibility to receive remuneration for attracting new participants; and
2. The remuneration received by the consumer is derived mainly from subsequent contributions to the scheme from new joiners.
While laws of product safety, product liability or guarantees on consumer goods have been harmonized, the legislation concerning the specific products typically sold through the direct selling channel is a regulatory patchwork: some product categories are regulated at EU level, whereas others are partly or entirely regulated at national level. Some Member States have specific laws restricting the sale of products through certain channels of distribution.
Legislation concerning direct sellers is probably the most complex issue – while the Commercial Agents Directive (86/653/EEC) is a step towards the minimum harmonization of laws governing the standing of commercial agents, the status of direct sellers, as a sub-category of independent contractors, remains unresolved from a legislative perspective at the EU level. Similarly, there is no EU legislation concerning earnings claims, taxes, fees and social security of direct sellers. It is therefore the Member States’ laws that are to be consulted in this respect.
On 6 May 2015 the European Commission published a Digital Single Market Strategy for Europe. This Strategy sets out political and legislative initiatives that the Commission will undertake in 2015-2016. The Strategy includes many proposals that will impact retail and wholesale. As far as direct selling is considered, the initiative to harmonise rules on contracts and consumer protection for online shopping (tangible goods & digital content) is relevant as the Commission intends to harmonize the period of consumer guarantees within the EU. The proposal is expected by the end of 2015. In addition, Commission considers the possibility to introduce the Trader’s law principle meaning that in cross-border contract traders would be able to apply their national consumer protection law. The more detailed information cannot be provided at this stage as the proposal is still in the very early stage.
EU Member States and Candidate Countries
Member States of the European Union
ISO 3166 Code Name
AT Austria
BE Belgium
BG Bulgaria
CY Republic of Cyprus
CZ Czech Republic
DE Germany
DK Denmark
EE Estonia
ES Spain
FI Finland
FR France
GB Great Britain
GR Greece
HU Hungary
IE Ireland
IT Italy
LT Lithuania
LU Luxemburg
LV Latvia
MT Malta
NL The Netherlands
PL Poland
PT Portugal
RO Romania
SE Sweden
SI Slovenia
SK Slovakia
Acceding countries
ISO 3166 Code Name Date of accession
HR Croatia 1 July 2013
Candidate Countries
ISO 3166 Code Name
IS Iceland
ME Montenegro
MK Macedonia
RS Serbia
TR Turkey
Potential Candidates
ISO 3166 Code Name
AL Albania
BA Bosnia-Herzegovina
XK Kosovo
Datei:EU Member states and Candidate countries map.svg
Cooling-off Period
As of 13 June 2013 consumers have a period of 14 days to withdraw from a distance or off-premises contract, without giving any reason, and without incurring any costs other than delivery. (Article 9 (1) Directive 2011/83/EU). Following a recent development linked to the adoption of Directive 2019/2161, Member States have the right to extend the 14 days withdrawal period to 30 days for contracts related to unsolicited visits. While the Directive is still in the process of being transposed, some Member States are currently looking into this possibility of extending the deadline of 14 days to 30 days. Member States have until 28 November 2021 to transpose the Directive into their national law.
Pyramid Schemes
Establishing, operating or promoting a pyramid promotional scheme where a consumer gives consideration for the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products is banned and are considered unfair in all circumstances by Item 14, Annex I of Directive 2005/29/EC.
How is a pyramid scheme defined? In order to answer, one has to look at the ECJ decision of ‘4finance’ (Case C 515/12):
In order to be recognized as pyramid the scheme has to meet two conditions:
1. The consumer is charged for participation (in any amount, no matter how small) in exchange for the possibility to receive remuneration for attracting new participants; and
2. The remuneration received by the consumer is derived mainly from subsequent contributions to the scheme from new joiners.
Multi-Level Marketing
Not regulated under EU law. Consult national laws.
Prohibition on Products
The free movement of goods is an underlying principle of the European Union (Articles 34 and 35 TFEU). The provisions governing the free movement of goods shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.
Consult national laws for specific product bans.
EU law provisions on guarantees and product liability can be found in the Directive on Guarantee on Consumer Goods and in the Products Liability Directive.
Credit Restrictions Country
Consult national laws.
Money Collections
Directive 2011/83/EU (Consumer Rights Directive) allows Member States in relation to off-premises contracts to maintain existing national legislation prohibiting the trader from collecting the payment from the consumer during the given period after the conclusion of the contract. (Article 9 (3) Directive 2011/83/EU)
Licences
Consult national laws.
Status of Direct Sellers
Consult national laws.
Earnings Claims
In B2C relations, earnings misrepresentations will be considered unfair commercial practices. A commercial practice shall be regarded as misleading if it contains false information and is therefore untruthful or in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information is factually correct, in relation to one or more of the following elements, and in either case causes or is likely to cause him to take a transactional decision that he would not have taken otherwise. (Article 6(1) of Directive 2005/29/EC)
In B2B relations, earnings misrepresentations will be considered misleading advertising. ‘Misleading advertising’ means any advertising which in any way, including its presentation, deceives or is likely to deceive the persons to whom it is addressed or whom it reaches and which, by reason of its deceptive nature, is likely to affect their economic behaviour or which, for those reasons, injures or is likely to injure a competitor. (Article 2 of 2006/114/EC)
Taxes and Fees
Consult national laws. Direct taxation falls within the competence of Member States.
Social Security
Consult national laws.
Others
Directive (EU) 2019/2161 of the European Parliament and of the Council of 27 November 2019 amending Council Directive 93/13/EEC and Directives 98/6/EC, 2005/29/EC and 2011/83/EU of the European Parliament and of the Council as regards the better enforcement and modernisation of Union consumer protection rules
https://eur-lex.europa.eu/eli/dir/2019/2161/oj
Adopted: 27 November 2019
Transposition Deadline: 28 November 2021
The rules will start to apply on 28 May 2022.
The new Directive amends and updates the following consumer protection Directives:
- Unfair Contract Terms Directive (93/13/EEC);
- Price Indication Directive (98/6/EC);
- Unfair Commercial Practices Directive (2005/29/EC); and
- Consumer Rights Directive (2011/83/EU).
The Directive introduces the following key provisions:
- a) Doorstep selling and Unfair Commercial Practices Directive:The new rules will allow Member States to restrict certain misleading or aggressive marketing or selling practices that take place during unsolicited visits to consumers’ homesor excursions. Such provisions must be proportionate, non-discriminatory and justified on grounds of consumer protection. When pursuing consumer protection objectives, Member States cannot prohibit these sales channels as such; if they pursue any other objectives, such as public health or protection of private life, restrictions fall under the scope of the Unfair Commercial Practices Directive.
- b) Penalties: Member States shall impose penalties for the infringements of the Unfair Commercial Practices Directive and the Consumer Rights Directive. Indicative criteria are set out to help national authorities to decide the level of fines, including the nature, gravity, duration and scale of an infringement. Concerning widespread infringements (e.g. affecting consumers residing in at least two Member States), maximum fines can be at least 4% of the annual turnover of the trader and when the annual turnover is not known, at least 2 million EUR.
- c) Online Platforms :Consumers will have to be informed of the main parameters determining ranking of products in searches and the relative importance of those parameters. They also have a right to be informed if the price was personalized on the basis of automated decision-making. Practices, such as stating that reviews of a product are submitted by consumers who have actually used or purchased the product without taking reasonable and proportionate steps to check that they originate from such consumer, are banned.
Directive on Consumer Rights (2011/83/EU)
http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32011L0083&rid=1
Adopted: 11 October 2011
Transposition deadline: 13 December 2013.