Understanding Federal Laws on Incentive Programs for Alcohol Brand Owners

In a recent discussion with an alcohol brand owner, we discussed the legality of sales incentive programs for distributor sales representatives. This conversation highlighted the importance of understanding federal laws that govern such practices.
A proposed sales incentive program for a distributor included monetary rewards for opening new accounts and reordering products. While this might seem like a great way to boost sales, it is crucial to understand the legal implications of such incentive programs.
Federal Law Generally Prohibits Sales Incentive Programs
Under 27 US Code 205(c), it is unlawful for any person engaged in the business of distilling, brewing, rectifying, blending, or other production, or as an importer or wholesaler of distilled spirits, wine, or malt beverages, to engage in certain practices that constitute unfair competition or unlawful practices. This includes offering incentives that could be seen as a substantial restraint on trade or that involve interstate or foreign commerce.
The regulations under 27 CFR Part 10, issued by the Alcohol and Tobacco Tax and Trade Bureau (TTB), further clarify these prohibitions. These regulations specify practices that may result in violations of section 205(c) of the Federal Alcohol Administration Act. The key points include:
- Commercial Bribery: It is prohibited to induce a trade buyer to purchase products to the exclusion of others through means such as furnishing equipment, money, or services1.
- Exclusion: Practices that substantially restrain or prevent transactions in interstate or foreign commerce are also prohibited.
Examples of Incentive Programs
Here are some examples of incentive programs that could potentially violate federal laws:
- New Account Incentives: Offering monetary rewards for each new off-premise and on-premise account opened.
- Reorder Incentives: Providing monetary rewards per case for all sales to existing accounts without any minimum order requirement.
- Bonus Incentive Plans: Programs that provide specified benefits to a select group of distributor employees based on their performance.
- Commission Incentive Plans: Offering commissions for securing new business or enhancing business with existing customers.
Key Takeaways for Alcohol Brand Owners
- Understand the Law: Familiarize yourself with 27 US Code 205(c) and 27 CFR Part 10 to ensure your incentive programs comply with federal regulations.
- Avoid Prohibited Practices: Refrain from offering incentives that could be construed as commercial bribery or that substantially restrain trade.
- Consult Legal Experts: Before implementing any incentive program, consult with legal experts to ensure compliance with all applicable laws.
By understanding and adhering to these federal laws, alcohol brand owners can avoid legal pitfalls and ensure their business practices are both ethical and compliant.
Do you have questions about federal law concerning incentive programs in the alcohol industry? Contact us to schedule a consultation with a beverage attorney.
Because we’re attorneys: Disclaimer. Originally posted 01/19/2025.