Trade association code of ethics A group of producers of products sold by door-to-door salesmen employed by…

No. 128. Trade association code of ethics A group of producers of products sold by door-to-door salesmen employed by independent sales agencies has requested a Commission opinion with respect to the legality of a proposed code ethics to govern the practices of the agencies and the salesmen. The opinion was rendered foUowing the second submittal of the code, which had been substantiaUy modified as a result of confer-

ences with the Commission s staff pursuant to Commission direction. The modified code provides for the appointment of an Administrator who wi1 be empowered to impose tines against any of the agencies if he finds that they have authorized, condoned or in any way supported deceptive practices by their sales and collection representatives. The maximum amount of tines has been limited to an amount which in the Commission s judgment wjj not operate anti competitively or in a confiscatOlY manner but suffcient to constitute a deterent.

Further, in the modified code the agreement between signatory agencies not to employ a person found to be a wi1ful violator by the Administrator in a sales capacity for a period not to exceed one year was eliminated. In its place it is now provided that the Administrator, upon finding that a person has willfully violated the code, shall recommend that he not be employed in a sales capacity for a period not to exceed one year. However, it is further provided that an agency shall use its own discretion in deciding whether to follow such recommendation of the Administrator. In order for a person to be found to be a willful violator it must be determined that on three separate occasions he violated the code with knowledge that his representations were in violation of the code. Moreover, if an agency repeatedly condones or authorizes violations of the code, it may be subject to expulsion from participation in the code. Finally, in order to insure greater participation in the administration of the code by the agencies than was the case in connection with the original submittal, the code now provides that the Administrator wjj be responsible to a Board of Directors composed of six agencies and one producer. Of the six agencies, at least two must not be affliated with any producer. Also, the one producer must not be affliated with any agency. Appeals from actions of the Administrator may be taken as a matter of right to a committee composed of representatives of at least three participating agencies, at least one of which is not to be affliated with a producer. A new committee is to be appointed each month and its members are to be rotated from among signatory agencies. The Commission advised that it had given this matter very careful consideration in view of the magnitude of the problems which confront the industry and the obvious sincerity of the industry in attempting to devise ways to cope with those problems. Even taking all these factors into consideration, however, the Commission was unable to give its approval to those sections of code which apply ADVISORY OPINION DIGESTS 1737 to the salesmen as those sections are now written. While the code now provides the action to be taken with respect to the salesmen found to be in violation wouid be on the basis of a recommendation by tbe Administrator rather than by agreement among the signatory agencies , the Commission believes the probable result of that recommendation would be to substantially interfere with those individuals' right of employment and their right to have their fate decided by their individual employers uninfluenced by virtually mandatory recommendations from the Administrator. However, the Commission advised that it did not believe that this would call for outright rejection of the code, since it believed the code could be amended so as to achieve the leg-itimate objectives of the industry without running afoul of the antitrust laws. Thus the Commission stated it was prepared to advise the industry that it could see no objection to the maintaining by the Administrator of a public record of the names and circumstances respecting a finding- of a willful violation. If this modification was agreeable to the industry, so thal a provision to that effect couJd be inserted in the code in place of the present section applying to salesmen the Commission would have no further objection on that score. The Commission \vas further of the opinion, nmv that greater participation of the agencies had been assured, that it was possible to apply the code as now written to the producers and agencies in such a manner as not to do violence to the antitrust JU\VS, particularly if the element of coercion could be truly eliminated insofar as the agencies Ivere concerned when they \vere arriving at their decision as to whetber to join or wbether to )"emain under the code after having- joined. The Commission made it clear, however, that this conclusion was a tentative one since there was little recorded experience upon which to predicate such a judgment. Therefore, the opinion was based on the understanding- that there will be no coercion of any agency to subscribe to the plan , no coercion of any agency to ren1ain in it after it has subscribed and no retaliation of any kind against any agency which does not choose to join or which subsequently elects to leave after having joined.

The industry was also advised that the Commission approval extended in the opinion was given for a three year period, following- which the industry should resubmit its request, and, in the meantime, the Administrator must submit reports to the Commission of each complaint which was received, considered or investigated and of eacb action taken. Further, the opinion was rendered with instructions to the staff of the Commission to initiate periodic

inquiries after the plan had been put into effect to determine and report to the Commission as to how it is actuany working.

DISSEN'rING OPINION BY ELMAN Comnlissioner:

With the best of intentions , a trade association has proposed and the Commission now approves, the establishment of a Code which provides for the exercise of the powers of government by a private group.

It is one thing to encourage businessmen to promote voluntary compliance with the law. It is something else to approve a private scheme of law enforcement, v.-here investigations are conducted by private "policemen" and where violations of privately-decreed laws " are punished by fmes and penalties imposed by private judges " after privately-conducted "trials. The Code s Administrator and his staff win apparently function like a sman version of the Federal Trade Commission. But there is a big difference between such an administrator and the Commission, which is a public agency of government, with powers and duties that are defined and circumscribed by specific statutory provisions enacted by Congress. The decisions and orders of the Commission are subject to judicial review. Commission proceedings are public and must be conducted in conformity with the requirements of due process, the Administrative Procedure Act and other applicable provisions of law. Findings of fact must be supported by substantial evidence on the record. In short, an our actions are subject, substantively and procedurany, to the basic safeguards and restraints established by law. It is fundamental that the regulatory powers of government are too awesome to be turned over to private policemen, prosecutors, and judges no matter ho\\! we1l-intentioned. Regulation of business-at least when it involves the imposition of fines and penalties for violations of prescribed standards of conduct-is the job of government agencies and offcials bound by the limitations of due process and the rule of law. It runs against the basic grain of American society to permit private "vigilantes" to act as policemen and to allow private judges to hold "kangaroo courts" where punishment is imposed. The fundamental safeguards and restraints which protect the public against arbitrary or lawless offcial action are absent \vhen the powers of government are sought to be exercised by private individuals or groups. r think the Commission is taking a long step backward in approving the usurpation by a trade association of the law-enforce- !! ,

ADVISORY OPINION DIGESTS 1739 ment powers and duties of an agency of government. (File No. 673 7038, released May 23, 1967.