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A trial is not about what happened. It is about who can prove and, in a sense, sell what happened. The judge is the purchasing agent. The competition is in the room with you, vigorously shooting holes in your presentation.

Agents manage expectations. Don’t promise the moon to land a principal. Principals, especially those new to the trade, or those who have previously only sold direct, may expect unreasonably quick results. Don’t fuel the fire. Principals will expect the miracles you promised. Beware of principals who are out for only one thing, the most beautiful thing in the world, free representation.

When such a kulturekampf exists, the most important thing for both sides to remember is to carefully consider what is put down in writing. Those words are etched in stone and must be lived with later. An entire case can turn on a single sentence. This can be the most difficult thing to remember during heated discussions; when a principal alleges poor performance or when an agent attempts to collect past-due commissions. A skilled lawyer will punch a hole in a case with one small statement, and make it big enough to drive a truck through.

Protection Laws

Sales representative protection laws are on the books in a majority of states. Get to know your state’s law. More important for principals, get to know the laws of the agent’s home state, particularly those statutes relating to venue. For example, some statutes provide that jurisdiction is the agent’s home state — regardless of what the contract says. If principals are not careful, they could find themselves having to search the Internet to hire a lawyer in a far-away state that they’ve never been to, but can expect to visit regularly over the next two years.

States have different requirements regarding what is contained in a commission statement. Principals, be proactive. Know the backup-statement requirements for both states before entering into agreements. The contract’s commission-statement covenant should include, at a minimum:

1. The rate and method by which commission is computed.
2. The time commissions will be paid.
3. The territory assigned, with exceptions within the territory, such as direct or house accounts.
4. What chargebacks, such as advertising and returns, are authorized.

Make sure the contract covers all the bases. If anything is left out, it is extremely expensive for expert witnesses to review documents, attend depositions, and testify as to a trade’s custom and practice at trial. But, this testimony may be absolutely necessary when a contract is silent with respect to a critical issue.

Lawsuits are agonizing, but often necessary. The critical decision is hiring the right lawyer. The average person thinks of lawyers as professionals who only look out for their client’s interest. But, remember they are in business too.

Agents, be wary of attorneys working on straight contingency. Some may pump up a prospective client into believing that winning will be easy and flash dollar signs in front of your eyes to sign you up. But once there is real work to be done, they will dissuade you before they have to invest serious time and money.

Principals, be equally leery of attorneys who mislead you into believing that a losing case can be defended, or sell you on filing a meritless countersuit, alleging fraud, to sign you up.

Attorneys working on an hourly rate will welcome (and hopefully not create) extra work for billing. It may make more sense to pay hourly fees in large cases. But what about disputes over smaller amounts of $3,500-$15,000? Would it be cost effective to hire an attorney at an hourly rate? Will an attorney accept a smaller case on contingency?

Ignorance of the Law

A payment demand, or threat of a countersuit from a lawyer will be taken much more seriously than one made by a layman. It is imperative that you contact an attorney who has experience with sales representative laws. I have found that most attorneys don’t even know these laws exist. But, they find out quickly if it becomes necessary to defend a principal.

Even if a principal believes it is justified in not paying $7,000 the agent claims is owed, when the company is facing a $40,000 potential judgment, including treble damages, attorney fees and costs, it is probably best to begrudgingly pay $7,000 rather than pay much more than that just to hire a lawyer. However, if a principal has done a great job in documenting each commission payment, and can prove that no commissions are due, then a rep may not want to fight since many states’ statutes have attorney-fee-shifting provisions. Although some are mandatory and others are at the discretion of the Court, a Judgment against a rep may include attorney fees and costs incurred in defending a lawsuit.

Clients hate lawsuits since no one wants to rely on someone else to fight their battles in a language that is difficult to understand. Litigation and trials are outrageously expensive, complicated, and confusing. Navigating through this minefield is no simple task.

Arbitration Expense

Arbitration can be more user friendly. But, consider that it can be very expensive just to file, and then pay for the arbitrator’s time. It may or may not be less expensive in the long run. Your attorney fees still pile up.

If a contract contains an arbitration provision, make sure the language is taken verbatim from the American Arbitration Association. Simply agreeing to arbitration without specifying their organization as the trier of fact can leave you in limbo since the AAA will not have Jurisdiction over the dispute unless it is mutually consented to in a signed agreement.

Arbitrators are trained to listen carefully and act as though they are on your side. After they do the same for the opposing side, they are trained to come back and tell you your case has no merit, pressuring you to accept far less than what your case is worth. A critique of arbitrators is that they can lack the courage to fully award what is owed by splitting the baby.

Once it is obvious that there may be troubled waters ahead, what one does, says, and, most importantly, writes, is critical. Keep all communications. Instruct employees not to destroy any turnover orders. If there is criticism of the rep’s performance, then keep everything documented. Strictly follow the language of the contract with respect to warning, notice, and termination requirements.

For representatives, it is often difficult to know what is owed. If the distributor is cutting purchase orders and you can receive copies, there is no problem. If the line is direct, then it may be more difficult to have a number to sue for in Court. The biggest mistake, especially when representing a direct line, is to be in the dark. In that case, demand a minimum-monthly-guaranteed commission.

Principals, remember that sales rep laws don’t have teeth, they have fangs. Document commissions paid on each and every purchase order, show the percentage paid, and detail authorized chargebacks. Protect your company. Actively manage, not micromanage, to attain mutually-beneficial results.

MANA welcomes your comments on this article. Write to us at [email protected].