Dealing With Conflict With Your Current Manufacturers

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One of the most difficult situations faced by sales representatives is when a dispute arises with a manufacturer that the sales rep still represents and wants to continue representing. When a sales rep is wrongfully terminated or has not been paid commissions that remain owed after the relationship with the manufacturer has ended, the rep can pursue all available avenues of relief — including litigation — if necessary.

When the sales representative agency still represents the manufacturer, the situation requires more finesse. There are rare situations where a sales agency decides to sue a manufacturer with which it is still under contract. This is most common when the amount of money at issue is so significant that the rep is willing to bring suit even if doing so means losing the line. More often, the rep agency decides that keeping the line is too important and decides not to pursue unpaid commissions or to wait until the relationship terminates.

There are a number of things to consider and understand when a dispute arises with a manufacturer that you still represent.

Commission Change

One common situation is that a manufacturer cuts commission rates or just starts paying a lower commission without any notice. This presents a real conundrum. Complaining is unlikely to cause the manufacturer to restore the original commission rate. However, saying nothing is likely to be considered by the manufacturer as acquiescence to the change. Plus, if at any point down the road you decide to sue for the additional commissions, a court is also likely to view your silence — and even your cashing of the commission check — as your acceptance of the reduced commission rate. This relates to the basic contract formula: offer + acceptance + consideration = contract. In other words, if the manufacturer “offers” a reduced commission and you “accept” the offer by taking the reduced payment, you have a contract! (Most courts will treat the payment itself as “consideration” even if it’s less money than you think you should be paid.)

So how do you deal with this damned if you do, damned if you don’t situation? If you are not willing to complain loudly about the commission reduction regardless of the consequences, your best course of action is to make your displeasure known in a manner that does not result in termination or a “take it or leave it” response from your manufacturer. One example is to send a note expressing your concern about the commission reduction, your belief that the original rates are still in place, and your desire and expectation that the company will take a look at this situation. This leaves the door open for the possibility that the commission rate will be returned and gives you an argument that you did not “accept” the reduction.

Territory Change

Similar advice applies when the manufacturer reduces your territory or converts customers to house accounts. You want to be sure to stake out your position that the manufacturer’s conduct was improper so that you do your best not to give up your legal rights. At the same time, you want to express your dissatisfaction in a way that does not get you kicked to the curb.

Before you communicate with the manufacturer about its action, you need to be absolutely certain to understand your position and rights under your sales agency agreement. This may require the advice of your lawyer. If the amount of money at issue is significant enough that you might consider legal action, you do not want to send anything in writing without having the writing vetted by legal counsel.

Staying silent while a manufacturer whittles away at your commissions or territory can have serious consequences down the road. Several months ago, the owner of a sales representative agency called me because a manufacturer was trying to remove an entire state from his territory. My client did not particularly care about the particular state; in fact, he was losing almost $100,000 per year paying an employee to cover this state. While he was happy to give up this portion of the territory, we did not believe that his sales representative agreement allowed the manufacturer to unilaterally cut territory and were concerned that if we did not express that, we would weaken our position if the manufacturer tried to take away a larger, profitable portion of the territory at some point in the future. As we strategized about how to best handle the situation, we had to consider a number of factors, including approaching the situation in a way that preserved my client’s rights without causing the manufacturer to look too closely at the contract or try to renegotiate it.

Failure to Pay Commissions

Finally, one of the most common problems that arises between sales reps and their manufacturers is when the manufacturer simply stops paying the sales rep all or part of its commissions. Often a manufacturer fails to pay commissions for specific accounts. When this happens, the representative needs to request payment and a complete accounting of all sales in the territory. It is surprisingly common for a sales representative to call our office about a manufacturer it is still repping, but which has not paid commissions for five or more months. Unless you are waiting for a very large order to hit the books before raising a stink or terminating the relationship, it is hard to conceive of a business reason to keep repping a line that isn’t paying you. This presents a situation where legal action may be your only avenue to recover your unpaid commissions.

When a manufacturer stops sending commission checks, it is likely that the manufacturer has serious financial problems and may be on the verge of bankruptcy. It is usually very difficult to recover unpaid commissions when there is a bankruptcy because a sales representative is typically in line behind secured creditors. Get advice quickly to make sure you are in the best position possible to get paid if there is a bankruptcy.

In order to preserve all of your rights, including under one of the more than 37 different state laws that protect commissioned sales reps (and may entitle you to as much as four times your commissions and attorney fees) you should be sure to have a complete understanding of your legal position before writing to your manufacturer. Taking the time to be thoughtful and proactive could ultimately preserve your ability to be paid the full commissions on the sales that you worked so hard to make.

MANA welcomes your comments on this article. Write to us at [email protected].