Sub-Rep Agreements for Sales Reps | Agency Sales Magazine

2024	December	November	October	September	August	July	June	May	April	March	February	January
2023	December	November	October	September	August	July	June	May	April	March	February	January
2022	December	November	October	September	August	July	June	May	April	March	February	January
2021	December	November	October	September	August	July	June	May	April	March	February	January
2020	December	November	October	September	August	July	June	May	April	March	February	January
2019	December	November	October	September	August	July	June	May	April	March	February	January
2018	December	November	October	September	August	July	June	May	April	March	February	January
2017	December	November	October	September	August	July	June	May	April	March	February	January
2016	December	November	October	September	August	July	June	May	April	March	February	January
2015	December	November	October	September	August	July	June	May	April	March	February	January
2014	December	November	October	September	August	July	June	May	April	March	February	January
2013	December	November	October	September	August	July	June	May	April	March	February	January
2012	December	November	October	September	August	July	June	May	April	March	February	January
2011	December	November	October	September	August	July	June	May	April	March	February	January
2010	December	November	October	September	August	July	June	May	April	March	February	January
2009	December	November	October	September	August	July	June	May	April	March	February	January
2008	December	November	October	September	August	July	June	May	April	March	February	January
2007	December	November	October	September	August	July	June	May	April	March	February	January
2006	December	November	October	September	August	July	June	May	April	March	February	January

The Problem

Over the course of the last 40-plus years of practicing law and representing sales representatives, I have had several clients come to me to request that I prepare a Sub-Sales Representative Agreement. I have developed a form agreement that is very simple and can be used for most situations. My system works provided both the master sales representative and sub‑sales representative agree to be transparent in their relationship and in preparation of the Sub-Sales Rep Agreement. This is one of the same principles I employ when drafting standard sales rep agreements. It’s generally not a good idea for one party to be hiding information from the other. This is typically not a problem for most sales reps entering into a Sub-Sales Rep Agreement. Most of the time the sales reps are friends and are willing to work cooperatively in benefiting each other and the principal.

The Solution

First of all, I would strongly recommend that both the master sales rep and the sub-rep sit down together and discuss the goals and objectives for the Sub-Rep Agreement. This is no different than my views on negotiating sales rep agreements with a principal. I would recommend that you read the article I wrote for Agency Sales magazine entitled, “Don’t Negotiate Your Contract Backwards,” published in the April 2018 edition of Agency Sales. (Feel free to contact me and I will email a copy of the article to you.) The main point of the article is that the parties to an agreement should first sit down face-to-face and have a discussion regarding their key goals and objectives. The parties should then reach an agreement in principle which can then be put into writing. It’s a good idea to use a lawyer who understands your business and regularly represents sales representatives in contract drafting and in litigating sales commission disputes to formalize the Sub-Rep Agreement. MANA has a list of knowledgeable attorneys which would be a good starting point, it’s available in the member area of their website.

My definition of negotiating your contract backwards is when one or both parties provide a draft of an agreement to the other party before the negotiations start. To me that is backwards. The first step should be both parties sitting down to negotiate and agree upon the key terms and conditions that will be included in the agreement. Once that is done, drafts of the agreement can be exchanged. There are reasons for proceeding in this manner as more fully explained in my April 2018 article.

The key provisions in a Sub-Rep Agreement are essentially the same as the key provisions in a typical sales rep agreement. These are as follows:

Exclusivity of Customers

This means that the sales rep or sub-sales rep should get paid for all sales to the exclusive customers. This prevents the principal from competing with the sales rep or sub-rep at the exclusive customers. Competing with the principal is a no-win situation because the principal will always win. All they need to do is to quote a job cheaper through an in-house salesperson. One of the key reasons for sub-rep agreements is that the sub-rep has a relationship with some key customers that the master rep does not have. This is a way to expand the customer base for the principal to benefit all parties.

Commission Sharing

I always recommend that the master sales rep and the sub-rep agree upon a commission sharing arrangement based on a set percentage split of the commission paid to the master sales rep. The actual commission split is something for the parties to negotiate and agree upon. One of the problems with establishing a set commission rate for the sub-rep is that there may be a provision in the Master Sales Representative Agreement that provides for reduced commission rates under certain circumstances. If you are the master sales rep, you do not want to be in a position where the commission rate paid to the sub-rep is higher than the commission rate paid to the you as the master rep.

Attach Copy of Master Sales Rep Agreement

I always recommend that a copy of the Master Sales Rep Agreement be attached as an exhibit to the Sub-Rep Agreement. There are several reasons for this:

First, there are typically non-disclosure and confidentiality requirements for the master rep. The sub-rep needs to be bound by these. Otherwise, the sub-rep can unknowingly cause a breach of the Master Rep Agreement which could result in termination and the ending of commissions.

This also eliminates the necessity for the Sub-Rep Agreement to be longer than it should be by having to copy the non-disclosure and confidentiality provisions, thereby reducing the cost of preparing the Sub-Rep Agreement.

The post-termination commission payment provision for the Sub-Rep Agreement should mirror the post-termination commission provision for the Master Sales Rep Agreement.

Full disclosure of the Master Rep Agreement will foster trust and confidence for the sub-rep. This is important if you as the master rep want to motivate the sub-rep to be successful in procuring new business.

I also believe it’s important for the principal to be fully aware of the sub-rep relationship and Sub-Rep Agreement. Many sales rep agreements prohibit the master sales rep from assigning any of his duties or responsibilities to a third party without the principal’s consent. I prefer to have the principal also sign the Sub-Rep Agreement in part for this reason. Again, full disclosure is always best. You do not want to be in a situation where the customer mentions the sub-rep in communications with the principal and the principal is surprised that someone is calling upon a customer that the principal was not aware of.

Attaching a copy of the Master Sales Rep Agreement also means that you can have a sub-rep agreement that is three pages or less. Simpler is almost always better.

Conclusion

Entering into a sub-rep agreement can be very beneficial for the master rep, the sub-rep, and the principal. This is relatively simple to do and should be a tool in your toolbox for doing the best job you can for your principal.

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