In 1990, Minnesota enacted the Minnesota Termination of Sales Representative Act as codified in Minn. Stat. §325E.37 (hereinafter “MTSRA”). When it applies, the MTSRA provides a process of how and when a sales representative may be terminated by a principal.

Under the MTSRA, a “sales representative” means a person who contracts with a principal to solicit wholesale orders and is compensated, in whole or in part, by commission. Sales representative does not include a person who:

• is an employee of the principal;
• places orders or purchases for the person’s own account for resale;
• holds the goods on a consignment basis for the principal’s account for resale; or
• distributes, sells or offers the goods, other than samples, to end users, not for resale.

— Minn. Stat. §325E.37, subd. 1(d).

The MTSRA applies to a sales representative who, during some part of the period of the sales representative agreement:

• is a resident of Minnesota or maintains that person’s principal place of business in Minnesota; or
• whose geographical territory specified in the sales representative agreement includes part or all of Minnesota.

— Minn. Stat. §325E.37, subd. 6(a).

“Person” means a natural person, but also includes a partnership, corporation and all other entities.

— Minn. Stat. §325E.37, subd. 1(c).

The MTSRA does not apply to agreements between two sales representatives, Dachtera v. Whitehouse, 609 N.W. 2d 248 (Minn. Ct. App. 2000). Generally, it does not preclude parties from contracting a different state choice of law provision in their sales representative agreements which may result in the MTSRA not being applicable. Hagstrom v. American Circuit Breaker Corp., 518 N.W. 2d 46 (Minn. Ct. App. 1994). However, in 2007 the MTSRA was amended to provide that a provision in any contract between a sales representative dealing in plumbing equipment or supplies and a principal purporting to waive any provision of the MTSRA, whether by express waiver or by a provision stipulating that the contract is subject to the laws of another state, shall be void.

— Minn. Stat. §325E.37, subd. 6(c).

Sales Representative Agreement Under MTSRA

Under the MTSRA, a “sales representative agreement” means a contract or agreement, whether oral or written, for a definite or indefinite period, between a sales representative and another person or persons, whereby a sales representative is granted the right to represent, sell or offer for sale a manufacturer’s, wholesaler’s, assembler’s or importer’s goods by use of the latter’s trade name, trademark, service mark, logotype, advertising, or other commercial symbol or related characteristics; and in which there exists a community of interest between the parties in the marketing of the goods at wholesale, by lease, agreement, or otherwise. “Wholesale orders” means the solicitation of orders for goods by persons in the distribution chain for ultimate sale or retail.

— Minn. Stat. §325E.37, subd. 1(e).

Statutory Requirements to Terminate a Sales Representative Under MTSRA

The MTSRA regulates how and when a sales representative can be terminated.

A manufacturer, wholesaler, assembler, or importer may not terminate a sales representative unless the person has good cause and:

• that person has given written notice setting forth the reason(s) for the termination at least 90 days in advance of termination; and
• the recipient of the notice fails to correct the reasons stated for termination in the notice written 60 days of receipt of the notice.

— Minn. Stat. §325E.37, subd. 2.

The MTSRA defines “good cause” as a material breach of one or more provisions of a written sales representative agreement governing the relationship with the manufacturer, wholesaler, assembler, or importer, or in the absence of a written agreement, failure by the sales representative to substantially comply with the material and reasonable requirements imposed by the manufacturer, wholesaler, assembler, or importer.

— Minn. Stat. §325E.37, subd. 1(b).

The MTSRA also identifies six types of sales representative conduct that constitute good cause, of which a notice of termination is effective immediately. They are:

• bankruptcy or insolvency of the sales representative;
• assignment for the benefit of creditors or similar disposition of the assets of the sales representative’s business;
• voluntary abandonment of the business by the sales representative as determined by a totality of the circumstances;
• conviction or a plea of guilty or no contest to charge of violating any law relating to the sales representative’s business;
• any act of the sales representative which materially impairs the good will associated with the manufacturer’s, wholesaler’s, assembler’s, or importer’s trademark, trade name, service mark, logotype, or other commercial symbol;
• or failure to forward customer payments to the manufacturer, wholesaler, assembler, or importer.

— Minn. Stat. §325E.37, subd. 2(b).
(Referring to the reasons set forth in subd. 1(b), clauses (1) to (6) therein.)

Renewals of Sales Representative Agreements Under MTSRA

Under the MTSRA, unless there is good cause, as defined therein, no person may fail to renew a sales representative agreement unless the sales representative has been given notice of the intention not to renew at least 90 days in advance of the expiration of the agreement. A sales representative agreement of indefinite duration requires 180 days written notice of intention not to continue the agreement.

— Minn. Stat. §325E.37, subd. 3.

Rights Upon Termination Under MTSRA

Under the MTSRA, if a sales representative is paid by commission under a sales representative agreement, the representative is entitled to be paid for all sales as to which the representative would have been entitled to commissions pursuant to the sales representative agreement made prior to the date of termination, or the end of the notification period, whichever is later, regardless of whether the goods have been actually shipped. Payment of commissions shall be paid in accordance with the terms of the sales representative agreement, or if not specified, in the sales representative agreement, payments of commissions due the sales representative shall be paid as provided in Minn. Stat. §181.145.

— Minn. Stat. §325E.37, subd. 4.

In addition to the rights under the MTSRA, a sales representative may have other rights under the terms of a contract or case law: (e.g.: post termination commissions).

Remedies of a Terminated Sales Representative Under MTSRA

Unless there is a valid arbitration clause in a sales representative agreement, the sales representative has a choice of either filing for arbitration; or prior to the arbitration hearing, bringing all of the sales representative’s claims in a court of law, and in that event, the claims of all parties must be resolved in that forum. The sole remedy for a manufacturer, wholesaler, assembler, or importer who alleges a violation of any provision of the MTSRA is arbitration, unless the sales representative brings claims in a court of law, in which case, all claims will be resolved in a court of law.

— Minn. Stat. §325E.37, subd. 5(a).

Remedies under the MTSRA include any of the following:

• sustainment of the termination of the sales representative agreement;
• reinstatement of the sales representative agreement, or damages;
• payment of commissions under subdivision 4;
• reasonable attorneys fees and costs to a prevailing sales representative;
• reasonable attorneys fees and costs to a prevailing manufacturer, wholesaler, assembler, or importer, if the complaint by the sales representative is found to be frivolous, unreasonable, or without foundation; or
• the full amount of the arbitrator’s fees and expenses if the arbitrator finds the sales representative’s resort to arbitration or the manufacturer’s, wholesaler’s, assembler’s, or importer’s defense in arbitration was vexatious and lacking in good faith.

— Minn. Stat. §325E.37, subd. 5(b).

The decision of an arbitration hearing is binding and the district court shall, upon application of a party, issue an order confirming the decision.

— Minn. Stat. §325E.37, subd. 5(c).

Damages Beyond the Notice Period: The Wingert Case and MTSRA

In a 2006 decision, the United States Court of Appeals for the Eighth Circuit, held that the award of damages, beyond the notice period under the MTSRA, is supported by the plain language of the MTSRA. Wingert & Associates, Inc. vs. Paramount Apparel International, Inc., 458 F.3d 740 (2006). In that case, the sales representative (“Wingert”) was terminated by the principal (“Paramount”) without providing written notice not to continue the agreement 180 days prior to termination required for an agreement of indefinite duration. Paramount then contacted 18 of Wingert’s 20 agents and contracted directly with them at a higher commission than what they were making working as an agent for Wingert, but at a lower commission than what Paramount was paying Wingert. The Court upheld the jury’s finding which awarded damages of $228,366 for failure to provide the required 180 days’ notice to Wingert (regardless of what Wingert paid its sales agents) and $821,518 for damages beyond the 180 days period. The damages beyond the 180 days period related to lost profits for a four-and-one-half-year period which Wingert and its expert explained it would take to recoup its investment and retain replacements because Paramount did not provide Wingert the required 180 days’ notice. The Court found that the MTSRA did not exclude damages for lost profits.

Subsequent to Wingert, in an unpublished decision, a trial court granted partial summary judgment in favor of the principal. Mellum v. Bioworld Merchandising, Inc., Civil No. 07-CV-3348 (D. Minn. 2008). In its Order, the Court held that such other damages may not be speculative. However, once the fact of damages is proved with certainty, the extent of the damages need only be shown to have a reasonable basis in the evidence, citing Storage Tech. Corp. v. Cisco Sys., Inc., 395 F. 3d 921, 928 (8th Cir. 2005). In Mellum, the Court found that there was no evidence of how the failure to provide the sales representative with 180 days’ notice damaged the sales representative, apart from lost commissions during that period.

Conclusion

When the MTSRA applies, it provides a process of how and when a sales representative can be terminated. In the event there is any issue or question regarding its applicability, a sales representative would be well-served to contact an attorney who practices in this area and can provide helpful counsel as to the MTSRA and its remedies.

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Disclaimer: This article does not render any legal or other professional advice. Any person seeking such advice should hire an attorney who practices in this area of law.