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I, like many lawyers, advise my clients to document what the deal is with the principal in a written contract and amendments to the contract, so that each party can consult the contract to determine what each party’s rights and responsibilities are and, where the parties have some dispute they cannot resolve, a judge and a jury can do likewise.

However, in giving this advice, I stress that documenting each party’s rights and responsibilities is not enough. The sales representative must also make certain that each party’s rights and responsibilities under the contract are settled and fixed, preferably in plain English and tied to something objective, without the ability of the principal to change its or the sales representative’s rights or responsibilities at its sole discretion, or in other words reserving to the principal the ability to dictate rights and responsibilities as it pleases.

Unless each party’s rights and responsibilities are documented, settled and fixed in a contract, the sales representative cannot know what his or the principal’s rights and responsibilities are, what to expect during the relationship, what the likely value of the relationship and contract is and, if a dispute arises, whether or not he will receive the compensation he believes he has earned.

Many sales representative agreements contain a provision that appears to require mutual consent of the parties to change any contract term. This provision might resemble this: “No amendment or modification to this Agreement shall be binding unless such amendment or modification is signed by the Company and Representative unless otherwise provided herein.” Unfortunately, this standard provision, usually found in the Miscellaneous Provisions section of a contract, affords the sales representative little protection from unilateral changes in contract terms by the principal if other provisions, especially core provisions of a sales representative contract, such as the nature and scope of appointment, each party’s responsibilities, and commissions permit the principal to make changes as it sees fit.

1. Your Appointment

Many sales representative agreements provide that the principal may modify the products that the sales representative may market, the sales representative’s geographical territory, the customers assigned or served by the sales representative, customers who are house accounts and what products or customers the principal can directly sell its products to, in the principal’s sole discretion or at least without requiring the sales representative’s consent to the change. In such event, the contract does not really settle or fix the nature of the sales representative’s appointment. In addition, such a provision permits the principal to change material terms of a sales representative’s appointment without the sales representative’s consent.

Where a principal will not agree to require mutual consent to these core terms of an appointment, the sales representative may still be able to negotiate some limitations on the principal’s right to make changes to these terms unilaterally. For example, a principal may be willing to require mutual consent to change a customer the sales representative brought to the principal but reserve the right to change customers who the principal assigned to the sales representative unilaterally.

Settling and fixing the nature and scope of the appointment is important whether the appointment is exclusive or non-exclusive, but the sales representative should be mindful of the fact that the principal has a wider breadth of discretion under a non-exclusive appointment than an exclusive appointment.

2. Each Party’s Responsibilities

Many sales representative agreements contain a list of responsibilities the sales representative must undertake but lack a comparable list of responsibilities the principal must undertake beyond the provision of marketing materials, the payment of commissions and some reporting of commissions. This disparity in setting out comparable lists of each party’s responsibilities can create a situation where the principal shifts responsibilities to the sales representative (without additional compensation) and, in effect, unilaterally amends the agreement to the detriment of the sales representative. This cannot only result in the sales representative taking on additional responsibilities (without compensation), but can also reduce the commission compensation the sales representative receives. While the sales representative is discharging these new duties, the sales representative is not selling product to customers and is, therefore, not earning commissions.

One way to address this issue is to set forth comparable lists of what responsibilities each party has. Additionally, the sales representative can attempt to place a provision in the contract that the principal cannot increase the sales representative’s responsibilities without the sales representative’s consent and/or if the principal increases the sales representative’s responsibilities the sales representative is entitled to additional compensation based upon some mutual agreement or some objective standards.

It is also important to note that a principal can amend a sales representative’s responsibilities without consent where the sales representative agreement contains a provision that requires the sales representative to follow the principal’s sales policies. Typically, I advise my clients not to agree to such a provision, but I have reluctantly advised clients to agree to such a provision if it contains additional language that the sales policies have to apply and be applied to all persons equally. That position does not prevent the principal from shifting responsibilities to the sales representative, but it does provide some protection against discriminatory or arbitrary treatment.

3. Commissions

Sales representative agreements that permit the principal to change how the sales price is calculated, the commission rate (overall or as to a particular order or line) and/or with respect to any chargebacks or special deductions without the consent of the sales representative are, simply put, unacceptable. The principal can change the sales representative’s compensation without a breach of the contract.

Similarly, sales representative agreements that refer to a principal’s internal policies or other documents to determine commission rates, how commissions are calculated or other ancillary commission matters, such as split commissions, leaves the commissions the sales representative is to receive and how they are to be calculated in the hands of the principal, who may make changes to the sales representative’s detriment without the sales representative’s consent. In addition, typically the sales representative does not have access to the information to determine if such changes are being applied equally or in a discriminatory or arbitrary manner.

There should be no problem with subjecting the commission provisions in an agreement to verifiable criteria and facts.

Sales representatives, like all persons in business, should attempt to document their deals with written agreements that contain settled and fixed terms and that do not permit the other party to change the rights and responsibilities of the parties unilaterally.

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