Employee purchase plan: Should resale be prohibited?

By Raymond Dreyfack -- Plant Engineering, 6/1/1998

A cosmetics company had a generous employee purchase plan. Workers were permitted to buy company products at a 40% discount and "specials" at a lower price. The company manual specified that purchased products were intended "for employees' own use, or gift giving." The only restriction was a monthly limit not to exceed $250.

One day it came to Maintenance Supervisor Foster Goodwin's attention that Larry Klein, a repair shop mechanic, used the purchase privilege to conduct a thriving business on the side. He made the maximum allowable purchase each month, he regularly sold the products to neighbors, friends, relatives, and others at a 20% discount. He thus pocketed a monthly profit of $40 or more.

Goodwin told Klein he thought the practice was at least chintzy if not out-and-out dishonest. The mechanic disagreed. "The company makes the same profit on employee purchases that it does on customer sales. Management should have no beef."

Goodwin replied, "If that was the sole purpose of the purchase plan, a $250 limit wouldn't have been specified."

Klein refused to back down. "The manual says products are intended for employees' own use or gift giving. My own use is resale. It is strictly legit."

"We'll see about that," Goodwin said.

Question: Is Klein within his rights in profiteering from the products he purchases?

Gordon's verdict: "This guy is a slick article," Plant Engineer Luke Gordon told Goodwin. "He knows what he's doing is wrong and contrary to management's intention. He's also trying to weasel out of it on a technicality. Theoretically, he is putting products to his "own use," as the manual specifies. If this developed into a grievance, he could conceivably get away with it.

"Fortunately, the manual is up for revision and reprinting next month. The new edition should clear that the resale of purchased products is not permitted. Meantime I'd let Klein know that if he persists in this practice, he could be jeopardizing the entire employee purchase plan privilege."