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A commissioned sales representative called me recently with the following situation: Beginning in 2011, the agent served his pharmaceutical company as a commissioned sales representative on an independent contractor basis, receiving from the company a Form 1099 annually. The agent had a well-written, reasonably unambiguous contract with the company entitled “Independent Sales Representative Agreement.”

The agreement included standard terms that one would expect to see in these circumstances, such as the duration of the parties’ arrangement, the economic provisions addressing the sales commission percentages payable to the agent, when sales commission payments are owing to the agent, the agent’s geographic sales territory, venue selection for potential contractual disputes, and the like.

From my perspective as a litigator representing commissioned sales representatives, however, this particular paragraph in the agreement caught my attention:

“In the event this Agreement expires or is terminated for any reason, Representative shall be entitled to receive any Commission earned and due but not yet paid at the date of expiration or termination and Company shall have no further obligations under this Agreement.”

That language is critically important because it could mean that the agent is not entitled to receive from the company any post-termination sales commissions — even if the programs on which the agent made sales on behalf of the company continue, and the company continues to enjoy the associated revenues on those programs, for years after the date of his termination.

Now, here’s where things become very interesting.

The agent performed exceptionally well for the company. He regularly earned awards and received compensation incentives as a result of his substantial sales of the company’s products. He was recognized as the company’s most prolific sales representative nationally.

Around 2015, a private equity investor group purchased the company. After the closing of the acquisition transaction, the PE Group presented to the agent another document entitled “Independent Sales Representative Agreement,” which was very similar to the written contract that the agent originally entered into with the company back in 2011.

However, the agent never signed the new agreement with the private equity investor group. Neither party pursued the issue further. Instead, months and years passed by and the agent just continued performing his sales representative duties, the agent continued receiving commission payments on those sales from the PE Group, and the parties just continued on ostensibly as things had been before the PE Group’s acquisition of the company.

In addition, the PE Group never asked the agent to agree to assign to the PE Group the agent’s previous written contract — the initial “Independent Sales Representative Agreement” that the agent originally signed back in 2011.

As a result, the agent by default became — even if neither party specifically became aware of it — an independent contractor serving the PE Group as a commissioned sales representative with no enforceable written contract in place between agent and PE Group.

And the law in most jurisdictions generally provides that the procuring cause doctrine is the default rule that fills the gap in the absence of a clear contractual provision to the contrary. Under the procuring cause doctrine a principal owes to a terminated commissioned sales representative earned sales commissions on sales procured by the agent, even post-termination.

For example, “[i]n Michigan, as well as in most jurisdictions, the agent is entitled to recover his commission whether or not he has personally concluded and completed the sale, it being sufficient if his efforts were the procuring cause of the sale. In Michigan the rule goes further to provide if the authority of the agent has been cancelled by the principal, the agent would nevertheless be permitted to recover the commission if the agent was the procuring cause.” Reed v. Kurdziel, 352 Mich. 287, 294–295; 89 N.W.2d 479 (1958), see also Stubl v. T. A. Sys., Inc., 984 F.Supp. 1075, 1095 (E.D.Mich., 1997). “[T]he agent is entitled to recover [its] commission whether or not [it] has personally concluded and completed the sale, it being sufficient if [the agent’s] efforts were the procuring cause of the sale.” Reed, supra, 352 Mich. at 294.

In 2016, weary of paying large sales commissions to the agent every month, the PE Group terminated the agent and stopped paying him entirely. However, the terminated agent actually had a strong argument that he was entitled to post-termination commission payments from the PE Group — even though he previously had a contractual provision that restricted his entitlement to any post-termination commission payments — all because the agent never signed the new agreement with the PE Group, and the PE Group never requested that the agent assign his old contract to the PE Group.

The agent, who previously had a written contract that limited his post-termination commissions, became a sales representative with no contract in place. He is entitled to receive commission payments on sales that he procured after his termination.

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