New Herbalife Pact Blocks Distributors From Suing Company

Michael Johnson, HErbalife, CEO


Herbalife is making its new salespeople sign away their right to the sue the company.

The new restriction in Herbalife’s latest agreement with distributors comes as the protein-shake peddler, led by CEO Michael Johnson, spends more on legal fees to defend against allegations that it is a pyramid scheme in which most of its salespeople lose money.

“You agree that, by entering into this agreement, you and Herbalife are each waiving the right to a trial by jury … Class actions shall not be permitted,” it reads.

The agreement, which went into effect in August, requires that the company and its network of independent distributors agree to settle any disputes through arbitration.

Herbalife has spent millions to settle five class-action lawsuits over the years. Last month, a California federal judge nixed Herbalife’s bid to toss a suit by former distributor Dana Bostick, who claims Herbalife is a pyramid scheme and plans to seek class status next year.

Since hedge-fund activist Bill Ackman took a $1 billion short on the company and called it a pyramid scheme last year, Herbalife has spent $24 million on legal and advisory fees. Top law firm Boies Schiller is representing the company.

Herbalife critics are concerned that the company will try to make the new arbitration agreement retroactive, because it says it covers “claims that rose before this or any prior agreement between Herbalife and members.”

Lawyers close to Herbalife said the new clause will only affect distributors who joined the company after August 2013.

“It cannot be enforced against a person who hasn’t signed that contract,” said one. Herbalife declined to comment.

However, the rules for Herbalife’s distributors say they can change the terms at any time at their sole discretion.

“That could invalidate the entire contract, even for new people,” said Douglas Brooks, a lawyer who sued Herbalife in three prior class-action claims.

Arbitration agreements are common to multilevel marketing companies but have sometimes been so one-sided that they were thrown out of court.

Get more information, facts and figures about Herbalife, click here for the Herbalife overview.

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