LuLaRoe is facing a new class action lawsuit that contends that the direct sales clothing company misled its sales consultants into joining a “pyramid scheme.” The new lawsuit is the company’s third this year.
Business Insider reports that four consultants are suing the company on six counts of misconduct, including violation of California’s Unfair Advertising Law, breach of contract, and breach of the covenant of good faith and fair dealing.
The plaintiffs allege that the company engaged in unfair business practices when it changed its buyback policy in September.
According to CBS News, new consultants are required to purchase upwards of $5,000 in products called the “onboarding package.” The company recommends that consultants keep more than $20,000 worth of inventory on hand.
The buyback policy was a guarantee that consultants could receive a full refund for unsold products if the person leaves the company.
But, as previously reported on Dearly, on September 13, the policy was changed without warning. Consultants were told that the refund for unsold inventory was being lowered from 100 percent to 90 percent with additional restrictions.
All four of the plaintiffs now have thousands of dollars worth of products that cannot be returned at full price. In the case document, the consultants claim the company promised the buyback program would never expire.
Self reports that the lawyer representing the consultants recently won the $25 million settlement against Trump University for fraudulent business practices.
A spokesperson for LuLaRoe told Dearly that the company has not been served with the official complaint yet:
“We believe these allegations are wholly without merit and intend to vigorously defend against them. LuLaRoe will in good faith continue to abide by the terms of the Policies and Procedures — accepted and binding upon every Independent Fashion Retailer executing the LuLaRoe Independent Consultant Application and Agreement — which includes mediation and legal arbitration as the appropriate forums for addressing any disputes about the Retailer cancellation, return and refund process.”
This isn’t the first time that LuLaRoe has been faced with controversy. Earlier this year, thousands of women complained that LuLaRoe products were ripping, and customers were scrambling for refunds:
— Ashley Lenahan (@h_j_7) February 27, 2017
In fact, a consultant told IJR that she was “ghosted” when she asked the company about its returns policy after she lost money for returning defective products.
The controversy spurred the start of a closed Facebook group known as the LuLaRoe Defective Group, which has nearly 50,000 members. LuLaRoe launched a Happiness Policy in April for customers to receive refunds from consultants.
On March 23, former customers launched the first class action lawsuit against the company.
The company is also facing another lawsuit from customers who allege the company overcharges on sales tax based on the location of the salesperson rather than the location of the customer. CBS reports that LuLaRoe claims the sales tax error was due to a software error.
According to Forbes, LuLaRoe is still a rapidly growing startup company. It made more than $2 billion in revenue in four years.
Forbes later updated the article to note that many unhappy former sales consultants contacted the publication about the change in the buyback program.