A battle with Canadian distributors may have drastic repercussions for Tupperware
The company has sued five former distributors, saying they didn't make good on promissory notes each signed to become a distributor. The notes, for $200,000 to $300,000 each, gave each distributor the rights to a territory and its sales force. Tupperware's filing says the company offered to convert the notes to no-interest debt but that the distributors declined. The company also says it delivered goods the distributors sold but never paid for.
In a countersuit, the distributors say they not only could not reach the profit margin the company promised, they actually lost money when Tupperware changed prices and sales strategies aimed at increasing Canadian sales. Together, the aggrieved distributors represent a third of the company's sales in Canada.
The broader implications of the suit stem from Canadian law that may define Tupperware distributors as franchisees, which would then allow distributors to sue the company for losses and other damages.
Tupperware insiders say the issue is a hot topic within the company. The company, commenting in a statement, says it "regrets that despite efforts made over several months, it was unable to reach an accommodation with the former distributors."
The dispute caught the eye of Les Stewart, a self-styled advocate for franchisees and founder and president of the Canadian Alliance of Franchise Operators, who detailed the trouble on the organization's website, cafo.net, in a section called "Tupperwars." The web page claimed Tupperware used deceptive practices in recruiting distributors, in part by misrepresenting its sales force numbers and the earning potential of distributors.
Tupperware asked the Ontario Superior Court to have the content removed, claiming the site was a "full-scale attack" on the company's relationship with its sales force. A Canadian judge agreed and ordered the content removed until the legal battle has run its course.
An adverse ruling in Canada will not have direct legal standing on Tupperware's relationship with its U.S. distributors, but it could embolden U.S. distributors already unhappy with the company's foray into retail store sales and other recent steps intended to shore up its financial status. The company has made two rounds of layoffs this year and has instituted a salary freeze.
Although Tupperware maintains its relationships are with "distributors," it calls them "franchisees" in some legal documents and awards programs.
"I wouldn't have even questioned Tupperware's distributor relationships until one of the distributors here contacted me," Stewart says. "But now I've learned that a billion-dollar company can be scared into next week by a dozen people, and I wonder why that is."