MANA member attorney Scott M. Sanders identified three key areas to consider as he covered situations related to principal agreement terminations during a MANAcast:

• Key contract terms and the ability for reps to collect unpaid commissions.
• Potential ways around 30-day termination.
• A discussion of state laws favoring reps when they make a claim for unpaid commissions.

At the outset of his presentation, which was followed by a question-and-answer session, Sanders maintained that independent manufacturers’ representatives were what he considered “road warriors.” As such, “They often take a long time to build up a book of business with a particular principal. For all that work on the front end to build long-term sales, they should be protected ethically and legally on the back end. Unfortunately, most of the contracts that they enter into with principals don’t provide for that protection.”

Sanders is the senior partner of Sanders & Montalto, LLP, and lead counsel of the Sales Commission Enforcers, a team of attorneys and staff dedicated to protecting the legal rights of sales agents. Since 1989, he has a 98 percent success rate in settling or obtaining judgments in sales commission disputes. He is one of 20 attorneys that MANA members can consult with as a part of their MANA membership. A full list of those attorneys can be found in the member area of the MANA website (www.MANAonline.org).

The attorney continued, “The fact is that all contracts come to an end. Thirty days’ notice is pretty short, and sometimes, principals don’t give any notice at all. Sometimes principals will give more notice than is required by the contract. That is the best practice and one that we recommend. We prefer something like 60, 90 or even 180 days. It’s not unusual for me to receive a call from a rep informing me that their contract has been terminated and they’re not receiving their commissions that are due.” Hence, the need for the subject matter of the MANAcast — which may be accessed in the member area of the MANA website.

Among the many subjects pertaining to principal terminations of representation agreements covered by Sanders during the MANAcast were the following.

Venue

Sanders explained that venue means the place where a lawsuit or other form of dispute resolution will take place. Choice of venue may be the key in deciding whether or not to move ahead with a lawsuit. He emphasized how important it was for every agent to strive for a contract provision laying venue in their own state. As he stated in a previous article in Agency Sales: “If no venue provision is included in a contract, then any state that has a reasonable nexus to the dispute is probably a good place to file suit. That could be the agent’s home state or that of the key customer at issue, or where the agency performed the services. However, that is a technical legal question for which an attorney should first be consulted, on a case-by-case basis.”

Choice of Law

In a December 2013 article that appeared in Agency Sales, Sanders made the point that choice of law is the most misunderstood of the contract terms of importance to reps. “Most agents sign contracts making disputes over their contract subject to the laws of the principal’s state. They then assume that their own states’ Commission Protection Acts do not apply; and that they are thus limited in damages….”

In that article, he continued: “Neither a sales agent, nor a manufacturer can void state laws passed after many years of debate and legislation, just at their whim and the signing of a contract that claims the contract to be subject to a different state’s laws. Whether or not parties agree to make a particular state’s laws applicable in contract disputes does not conversely mean that another state’s laws do not also apply, though that does not mean cumulatively.”

Alternative Dispute Resolution (ADR)

An ADR is an alternative to a traditional civil lawsuit in deciding or resolving a dispute and can take the form of mediation, non-binding arbitration, or binding arbitration.

Mediation means that a neutral “mediator” (often a retired judge or an accomplished attorney practicing in the field) will try to procure a settlement between the opposing sides, something that all parties will agree to and sign.

Non-binding arbitration is a process where a neutral “arbitrator” will hear and decide a case in favor of one party or the other, after submission of evidence (and sometimes testimony of witnesses) in a more informal setting than a court room, and under less stringent procedure. The outcome may generally then be appealed by the losing party.

Although the same basic process as non-binding, binding arbitration results in a decision by the arbitrator that may not normally be appealed.

Of the three types of dispute resolution, Sanders stressed that in his opinion, “Mediation is the best.”

Among the questions posed towards the end of the MANAcast were the following:

Q: Sometimes when a rep makes a claim for unpaid commissions, the amount of the commissions is unknown. If that’s the case, what does the rep do?

A: According to Sanders, “Reps will come to me and simply don’t know what they’re owed. That occurs when they are not privy to purchase orders, invoices, etc. That causes the rep to enter the great unknown without knowing what they’re owed. If a rep is uncertain, and they can’t negotiate something with the principal, then reps have a cause of action called an Accounting. The court can order the principal to provide the needed [accounting] information. That can’t be done, however, unless the rep files suit. It’s then that discovery tools would apply to the rep’s action.”

Q: Why is the choice of venue so important?

A: “As an example, consider if a rep signed an agreement with a principal whose home state is Florida, and the rep is located in California. In that case, you must file an action in Florida and witnesses are in California. It’s going to be difficult to get witnesses/customers to travel for testimony unless they will voluntarily appear. Nothing is binding on them to do so.” He concluded by noting that if a rep cannot negotiate a venue provision in their home state, they can be in a difficult position.

Q: How can a rep learn which of the various state commission laws might provide them with the best protection?

A: According to Sanders, general contract law is pretty uniform throughout the United States. “But laws pertaining to reps and protection of their sales commissions do vary depending upon where the principal and the rep are located.” It was emphasized that a list of state laws pertaining to this subject may be found on the MANA website.

At the conclusion of the MANAcast, Sanders stressed how important it was for a rep faced with any questions about commissions they might be owed to speak with a rep-savvy attorney — a list of MANA attorneys can be found on the MANA website.

Disclaimer: This article is not legal advice. Consult your attorney whenever legal advice is needed.

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Throughout the MANAcast, Sanders referred to several articles in Agency Sales (all of which may be found in the member area of the MANA website) that he has authored on the subjects that were covered. Among those articles were:

• “Key Contract Terms Every Agent Needs,” December 2013, p. 52.
• “30-Day Termination and the Covenant of Good Faith and Fair Dealing,” August 2016, p. 57.
• “Potential Ways Around 30-day Termination Clauses, Part 1, January 2018, p. 60; Part 2, February 2018, p. 60.
• “Our Contract Has Been Breached, What Now?” January 2020, Part 1, p. 60; Part 2, February, 2020, p. 58.

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