The steady beat of questions to a panel of attorneys at MANAFest on the subject of reps and their contracts showed how important that subject is to reps. When five rep-savvy attorneys took the stage at MANA’s first-ever, rep-only event, attendees couldn’t wait to pepper them with specific questions on their relationships with their principals. High on their list of concerns were: re-negotiating contracts, the benefits of a handshake vs. a written agreement, and how to protect commissions when principals file for bankruptcy.

Attorney members of the panel were: Stephen Valentine and Victoria Valentine, Valentine & Assocs., West Bloomfield, Michigan; John Riccione, Aronberg, Goldgehn, Davis & Garmisa, Chicago, Illinois; Dan Beederman, Schoenberg, Finkel, Newman & Rosenberg, LLC, Chicago, Illinois; Scott Sanders, Sanders & Montalto, LLP, Torrance, California; John Schoonover, Schoonover, Andrews & Rosenthal LLC, Cleveland, Ohio.

Among the subjects addressed by the panel were:

How Important Is the Rep’s Contract?

When that relatively simple question was asked, one of the panel’s attorneys was quick to respond with the advice “The most important thing you’ll ever do in your business is signing your agreement with your principals. It’s important because you’re signing an agreement that details how you’re going to be compensated for your contributions on their behalf. In addition, you’ll never have a stronger hand in negotiating such agreements that when the principal first engages you in conversation.”

He continued that the danger today is that “Too often we see boiler-plate or mimeograph type contracts that do very little to protect the interests of the rep or the principal. One of the major failings of such agreements is that the termination clauses are too short.”

In order to avoid problems, the attorneys advised that reps should go through proposed agreements with attorneys who are knowledgeable concerning rep law. “Thoroughly go over the agreement and identify bullet-point red flags indicating your major areas of concern. Because there are always areas that are of greater concern than others, you should then decide which of these areas you want to go back to the principal in an effort to affect change.”

The attorneys also mentioned that the MANA-recommended contract is “wonderful and if you are successful in getting a principal to sign it, good for you.”

“In the end, what you want with your principal is an agreement that serves as the foundation for a positive relationship between you and your principal. You need to focus on whether the agreement you sign allows both of you to move forward in a fair and balanced manner.”

Commissions Lost in Bankruptcy

Given the mergers/consolidations among manufacturers and the number of manufacturing firms that have filed for bankruptcy, several reps asked what they should or could have done to protect commissions that are in danger of being lost as the result of legal proceedings.

According to one attorney, “There’s no single answer for every instance. That’s why it’s important for a manufacturers’ representative to have professional legal counsel. Sometimes, bankruptcies or reorganizations of companies aren’t constructed to assume various liabilities—including the reps’ commissions.”

It was urged that when the rep is made aware of the financial difficulty of a principal or learn of an impending merger, they should communicate with the company in question. “Send a letter or e-mail to the principal and ask ‘Am I still working for you and what are my responsibilities?’ Put the answer you receive in your pocket and save it for future use. That gives you something to work with. But above all, get good legal advice.”

When to Re-Negotiate?

The owner of a 20-year-old rep firm has many long-standing agreements with principals in place. His question was: “Is it worth it to closely look at these agreements with a goal of re-negotiating when needed?”

In answer one of the attorneys said: “The important thing in your agreement is the relationships you have with principals. My advice is ‘If it ain’t broke, don’t fix it.’”

Another attorney advised to annually conduct an audit of all your rep agreements. “Look closely at when they expire, what products, territories does it cover? But my best advice is that if there are no problems, ‘Let sleeping dogs lie.’ Don’t create problems where none existed before.”

When Is a Contract Not a Contract?

When a principal approached his rep about re-negotiating the contract, the principal maintained the existing contract was not a contract because it had not been signed by an officer of the company, but rather by a sales manager. In response, the attorneys offered a few bits of advice:

• “If the person who signed the contract had apparent authority to sign it, then the contract is valid. Even if an officer of the company failed to sign the contract, it is a valid agreement.”
• “If the principal is attempting to force modifications to the contract, unless you agree to those modifications, you’re not bound by them. You have to protest their efforts.”
• “Whatever you do, make sure you negotiate. Once the negotiations are completed, make a business decision based on what is best for you.”

Proliferation of Electronic Communications

When a rep voiced his concern regarding conducting business on the basis of electronic communications between himself and his principals, an attorney responded that in his opinion “There is too much business being conducted electronically. Part of the problem in communicating that way is that if and when a dispute arises, the rule of discovery covers all paper and electronic communications.” He added that “I’m a big advocate of communicating via paper, fax machine and pen. It’s better not to rely so much on the computer. Make sure you have a hard copy of everything that is important—including agreements covering what you are entitled to and what you have to do in order to earn your commission.”

Contingency vs. Fee Basis

In the unfortunate instance when a rep decides he must take legal action with his principal, the question was asked concerning how attorneys charge for their services—contingency or a set fee basis? In answer one attorney noted that “We begin by just getting the basic information from the rep. From there, we’ll start talking about various methods of payment and we arrive at a joint decision concerning what the terms will be. We don’t really have hard and fast rules, rather we’ll work with the rep to come up with an agreement.”

Another attorney explained that “We used to work on an hourly fee but that was a disadvantage to reps who didn’t have a large ‘war chest.’ They simply couldn’t pay the amounts that accrued. Now we come in on a contingency basis, however, we won’t file suit on a contingent fee. If we file suit, we will work on a flat monthly fee that’s a little like a draw against commissions.”

Finally a third attorney offered that “We have a variety of payment methods. Ultimately, it really comes down to the size of the rep firm and the size of the case. Each case calls out for a different fee. As we work together, we generally come up with a plan that works for both of us. ”

Handshake vs. a Written Agreement

When a rep asked whether he was better served by working under a handshake agreement or a written agreement, one of the attorneys offered that “Sometimes you’re better off with the verbal agreement which is enforceable. If you have a poorly written agreement that puts you at a disadvantage, the verbal agreement is much more desirable.”