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Demand for the sale of some products skyrocketed to record levels as a result of the unforeseen COVID-19 virus.

Manufacturers’ representatives who were fortunate to have product lines in PPE, medical equipment and other high demand Covid related products experienced significant spikes in their sales this past year. While increased sales should result in increased commissions, this was not always the case for some Covid related sales commissions. While most principals will continue to pay the earned commissions to their representatives, some may be tempted to invoke a force majeure clause contained in some sales commission agreements as a legal basis to avoid their contractual obligations because of the COVID-19 pandemic.

Simply because a sales commission agreement may have a force majeure clause, it does not mean it can be invoked just to avoid paying the commission. A force majeure clause will excuse a party from having to fulfill its obligations under a contract if there is an occurrence of an unpredictable hardship on one or both of the parties. A force majeure clause will often define or list the unforeseen events that can be invoked by a party to excuse performance. Typical events included in the clause are an act of war, terrorism, or a natural disaster. The mere occurrence of the unforeseen event will not automatically excuse a party from performing their contractual obligations. Instead, a party invoking a force majeure clause must show that the unforeseen event has made their performance under the terms of the contract impossible or impracticable. This is often a very high bar to meet for a party seeking to be excused from performing.

In the age of COVID-19, some principals are attempting to rely on force majeure clauses to avoid or reduce the commissions otherwise due to manufacturers’ representatives. Whether these attempts will be successful, like many legal issues, depends on a variety of different factors and circumstances, which will include the terms of the contract and governing contract law.

Courts are increasingly holding that the COVID-19 pandemic may constitute a “natural disaster” event, which is covered by a force majeure clause in a contract. However, even if COVID-19 is a natural disaster, a principal can only successfully invoke the force majeure clause if it proves that as a result of the COVID-19 pandemic, the principal’s payment of an earned commission is impossible or impracticable. The fact that a manufacturers’ representative is owed a significant commission because of a COVID-19 induced sales spike does not allow a principal to invoke a force majeure clause solely premised on the existence of the COVID-19 pandemic. In most cases involving increased sales due to COVID-19, the principal has benefited, and the sales representatives should as well for having secured the increased sales from their accounts. In these situations, the principal does not have a plausible argument that paying the commission would be impractical or impossible.

If your principal is attempting to invoke a force majeure clause as a basis to avoid paying an earned commission, you should strongly consider obtaining legal advice and counsel concerning your specific facts and circumstances.

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