The Minnesota Legislature recently passed and Governor Dayton signed, a significant amendment to Minn. Stat. §325E.37, otherwise known as the Minnesota Termination of Sales Representative Act (“MTSRA”). The amendment passed with overwhelming bi-partisan support and essentially closes a loophole in the existing law. It will benefit certain independent contractor sales representatives as defined under the MTSRA.
Key Provisions
In the early 1990s the MTSRA was enacted in Minnesota. It was enacted to regulate the relationship between a manufacturer, wholesaler, assembler, or importer (referred to herein as the “principal”) and a sales representative, as defined under the MTSRA, with regard to how a sales representative can be terminated.
The MTSRA defines a “sales representative” as a person (a natural person, partnership, corporation and all other entities) who contracts with a principal to solicit wholesale orders and who is compensated, in whole or in part, by commission.
Under the MTSRA, a 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.
- Distributes, sells, or offers the goods, other than samples, to end users, not for resale.
Furthermore, to be protected under the MTSRA, a sales representative must, during some part of the sales representative agreement:
- Be a resident of Minnesota; or maintain that person’s principal place of business in Minnesota.
- Or have a geographical territory specified in the sales representative agreement, that includes part or all of Minnesota.
Under the MTSRA, a “sales representative agreement” is defined as a verbal or written agreement, for a definite or indefinite period, between a principal and sales representative whereby the sales representative is granted the right to represent, sell or offer for sale a principal’s goods. The term “wholesale orders” means the solicitation of orders for goods by persons in the distribution chain for ultimate sale at retail.
One of the most noteworthy provisions of the MTSRA is that, unless there is “good cause” as defined under the MTSRA, a sales representative must be provided specific written notice of a principal’s intent not to renew or continue the sales representative agreement (depending on whether the sales representative agreement is of definite or indefinite duration.) For example, sales representative agreements of indefinite duration require 180 days written notice by the principal not to continue the agreement. For agreements of definite duration, a principal must provide written notice of its intention not to renew at least ninety (90) days in advance of the expiration of the agreement.
A principal may only terminate a sales representative agreement for “good cause.” Good cause is defined as a material breach of the sales representative agreement. Except for very limited exceptions in which a sales representative can be terminated immediately (bankruptcy, receivership, voluntary abandonment of the business, failure to forward customer payments to the principal, certain convictions, or materially impairing the commercial symbol of a principal), the principal must first provide the sales representative with ninety (90) days’ written notice setting forth the reason for the termination and the sales representative must be given sixty (60) days from the date that notice is received to cure such material breach. Whether or not a sales representative cures a material breach is often an issue which can be problematic for a principal.
2014 Amendment
The 2014 amendment to the MTSRA, which became effective on August 1, 2014 (the “Effective Date”), cures a long-standing loophole. Prior to the effective date, a principal could include a waiver or another state’s choice of law provision in a written sales representative agreement which had the effect (except for limited exceptions) of circumventing the protections under the MTSRA. For example, a principal based in Los Angeles could insert a waiver or California choice of law clause in its sales representative agreement, which had the effect of over-riding the protection under the MTSRA. The 2014 amendment provides that any such choice of law provision or waiver is void and not enforceable.
The amendment applies to new and amended sales representative agreements entered into on or after the Effective Date. Prior to its passage, the legislature amended the original bill to also include “renewed” agreements on or after the effective date. However, “renewed” sales representative agreements may be challenged by a principal under the contract clause as unconstitutional.
There is a split of opinions regarding “renewed” sales representative agreements. In Midwest Sports Mktg, Inc. v. Hillerich & Bradsby, 522 N.W. 2d 254 (Minn. Ct. App. 1996) the Minnesota Court of Appeals held that the 180 day written notice requirement to terminate a sales representative agreement of indefinite duration, originally entered into before the effective date of the original statute, was not a substantial impairment to the contract clause. However in Angostura International Limited, et al, vs. Steve Melemed, et al, 25 F. Supp. 2d 1008 (1998) a Minnesota federal court ruled that applying the MTSRA to a “renewed” agreement was a violation of the contract clause. Future cases will most likely determine the applicability of “renewed” agreements.
Conclusion
The 2014 amendment to the MTSRA, effective August 1, 2014, closes a loophole and results in added protection for those sales representatives who are covered under the MTSRA. Any question regarding the applicability of the MTSRA or its 2014 amendment should be reviewed with an attorney who practices in this area of law.
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.