The market for essential oils is worth more than $5.1 billion, and expected to reach $25 billion by 2024. Young Living is right at the center of it. With a network of farms that reaches from a sandalwood restoration project in Hawaii to an Arabian Frankincense Distillery in Oman, the Lehi, Utah-based company has built a burgeoning wellness business. By way of “therapeutic-grade essential oils” and oil-based cosmetics, it is on a mission to help consumers across the globe “elevate their spirit, support healthy habits, achieve whole-life wellness, and create lasting abundance.” But a new lawsuit says the 26-year old multi-level marketing company is far more aptly described as something else: a “cult-like pyramid scheme.”
According to a proposed class action lawsuit filed this month in a Texas federal court by Young Living member Julie O’Shaughnessy, the company – which brings in more than $1 billion in revenue each year – “purports to sell ‘essential oils’ via a complicated [multi-level marketing] operation,” a model that is “overwhelmingly dependent on the recruitment of new people into the Young Living sales force.”
While Young Living holds itself out as a company that “creates abundance” – i.e., financial rewards – for its nearly 3 million] members, in reality, Ms. O’Shaughnessy’s complaint asserts, “Young Living is nothing more than a cult-like organization falsely peddling the ever-elusive promise of financial success” by way of a “structure [that] ensures that every new member will almost certainly lose large sums of money … trying to recruit additional new members from an ever-shrinking pool of available candidates.”
The Young Living system works like this: once a member joins, and purchases the required “‘starter kit’ from an existing member,” which ranges “from $100 (for a basic kit) up to $260 for ‘premium’ kits,” Young Living pays her a cash bonus of $25 for each new member she recruits. Because the company does not pay a commission to new members for sales they make, “Recruiting is prioritized over the sale of product.” In fact, a new member’s “only opportunity to earn enough income to cover the cost of membership is by recruiting new members and then encouraging [those] members to also recruit aggressively.”
“By emphasizing recruitment over product sales, Young Living crosses the threshold from legitimate multi-level marketing [entity] into an illegal pyramid scheme,” O’Shaughnessy asserts.
Should members want to be eligible to receive commissions based on products sold, they “must enroll in the Essential Rewards program and maintain their active enrollment by [monthly] purchases of … an ever-growing inventory of unused products,” a “direct violation of the Federal Trade Commission’s 70/30 rule,” which requires that multi-level marketing scheme sellers must sell more than 70 percent of their individual monthly inventory before being required to purchase additional products in order to be eligible to earn commissions.
“The complex and intentionally hard-to-understand multi-layer compensation/participation structure of Young Living is a hallmark of illegal multi-level marketing pyramid schemes,” O’Shaughnessy claims, and this one, in particular, is not a particularly costly one for its members. The suit declares that “based on Young Living’s own public disclosures, 94 percent of total members earn an average of $1 per month in sales commissions, and more than half of those who joined in 2016 alone made no commissions at all.”
“Worse still,” O’Shaughnessy asserts, “these same members were nevertheless required to spend hundreds of dollars on Young Living products to remain active members. As such, the average loss per member in 2016 was approximately $1,175.” All the while, as Bloomberg reported earlier this month, the Young Living company, itself, exceeded $1.5 billion in annual revenue, which was derived, according to the suit, “from its own representatives [paying] to be part of the sales force, and the products its sales force is required to purchase to remain [their] active Essential Rewards [status].”
With the foregoing in mind, O’Shaughnessy sets forth claims of violations of the Racketeer Influenced Corrupt Organizations Act in connection with the defendants’ “pattern of racketeering activity, here wire and mail fraud,” and conspiracy. She has asked the court to approve her class action suit, thereby, enabling other similarly situated defendants’ to join and share in the unspecific monetary damages being sought.
A rep for Young Living told TFL, “We vigorously deny the allegations and will defend our company against this erroneous claim. Young Living is committed to maintaining the highest level of integrity and business ethics, so any allegations of this nature are very concerning to us.”
“Our business model supports the entrepreneurial efforts of those who choose to go beyond product utilization by building a business. The most common method for customers to purchase Young Living products is through a membership (rather than as a retail customer) since members can purchase at wholesale product pricing,” the rep further stated. “Many, if not most, of Young Living’s members only buy product from Young Living and do not sell them or enroll others in Young Living. As such, they do not receive commissions from Young Living.”
*The case is O’Shaughnessy et al v. Young Living Essential Oils et al, 1:19-cv-00412 (W.D.Tx.).