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Creating an in-house incentive contest? Don’t forget the rules

November 15, 2013

If you create sweepstakes or contests, you understand that having a comprehensive set of official rules is essential.

But what about a contest that is part of an incentive program for a company’s employees, dealers, or distributors? The entrants in these types of promotions are typically employees of the company or sellers of its products. In either case, they rely on the company for their income. Given that relationship, you may not be too concerned that they would file a lawsuit or complain to the FTC or a state attorney general if they don’t believe the contest was run fairly, right? Wrong.

While the risk of being sued over these in-house programs may be minimal, I believe a good practice is to have official rules for virtually every type of incentive promotion. Employees and distributors have occasionally filed suits over incentive programs and will continue to do so, but the real reason for having the rules is to avoid misunderstandings between the entrants and the sponsor. Like contests that are available to the general public, it is important to have all of the terms and conditions of the contest clearly and completely spelled out.

In-house contest rules may not have to be as detailed as those for a public contest, but it is important that the rules address the following topics;

  • Eligibility: Who is eligible to participate? Is the contest open to only certain employees or dealers? Are dealers’ employees eligible without their employer’s knowledge?
  • Contest period: When does the program start and end? Are there multiple tiers of competition?
  • Entry: How do you enter? Clearly describe what entrants must do. Will there be automatic entry?
  • Prizes: What are the prizes and what is their approximate value? Make sure you comply with IRS regulations pertaining to incentive payments to employees.
  • Task: What must entrants do to win? What information is required and who compiles it?
  • Winner selection:How are the winners selected? List the specific criteria that will be used to determine the winner and discuss the weight given to each item.

There aren’t many downsides to creating rules for an in-house incentive program contest. Most of these types of rules can be prepared very economically. If the contest is repeated from year to year, or is used for other groups of participants, preparing the rules in these subsequent matters may involve only a few minor revisions.

Nevertheless, before they are reused, the rules for any contest should be reviewed by someone familiar with contest law who will be able to recognize any revisions that are required.

This post was written by retired Thompson Coburn partner Dale Joerling. If you have any questions about the topics discussed in this post, please contact Thompson Coburn partner Hap Burke.