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Unpaid commissions will be easier to collect for Minnesota manufacturers’ representatives. The Minnesota legislature recently passed, and Governor Tim Walz signed into law, a significant amendment to Minn. Stat. §325E.37, otherwise known as the Minnesota Termination of Sales Representative Act (“MTSRA”). The amendment passed with bi-partisan support and makes it easier for sales representatives, as defined under the MTSRA, to enforce a claim for wrongful termination and unpaid commissions.

The 2022 amendment to the MTSRA prevents an out-of-state principal from requiring a Minnesota sales representative to seek compensation for a violation under the MTSRA, and unpaid commissions, in another state. It strengthens the MTSRA and adds significant protection for Minnesota manufacturers’ representatives.

Why the Amendment Is Important — Key Provisions of the MTSRA

The MTSRA was originally enacted in Minnesota in 1990. It was enacted to regulate the relationship between a manufacturer, wholesaler, assembler or importer (referred to herein as the “principal”) and a sales representative, as defined under the MTSRA, with regard to how a sales representative can be terminated.

The MTSRA defines a “sales representative” as a person (a natural person, partnership, corporation, or other business entity) who contracts with a principal to solicit wholesale orders and who is compensated, in whole or in part, by commission.

Under the MTSRA, a sales representative does not include a person who:

• Is an employee of the principal.
• Distributes, sells or offers the goods, other than samples, to end users.
• Places orders or purchases for the person’s own account for resale.
• Holds the goods on a consignment basis for the principal’s account for resale.

Furthermore, to be protected under the MTSRA, a sales representative must, during some part of the sales representative agreement:

• Be a resident of Minnesota; or maintain that person’s principal place of business in Minnesota; or
• Have a geographical territory specified in the sales representative agreement, that includes part or all of Minnesota.

Under the MTSRA, a “sales representative agreement” is defined as a verbal or written agreement, for a definite or indefinite period, between a principal and sales representative whereby the sales representative is granted the right to represent, sell or offer for sale a principal’s goods. The term “wholesale orders” means the solicitation of orders for goods by persons in the distribution chain for ultimate sale at retail, and also includes material, component, or part orders for use or incorporation into a product, and later resold.

One of the most noteworthy provisions of the MTSRA is that, unless there is a “good cause” as defined under the MTSRA, a sales representative must be provided specific written notice of a principal’s intent not to renew or continue the sales representative agreement (depending on whether the sales representative agreement is of definite or indefinite duration). For example, sales representative agreements of indefinite duration require 180 days’ written notice by the principal not to continue the agreement. For agreements of definite duration, a principal must provide written notice of its intention not to renew at least 90 days in advance of the expiration of the agreement.

A principal may only terminate a sales representative agreement for “good cause.” Good cause is defined as a material breach of the sales representative agreement. Except for very limited exceptions in which the sales representative can be terminated immediately (bankruptcy, receivership, voluntary abandonment of the business, failure to forward customer payments to the principal, certain convictions, or materially impairing the commercial symbol of principal), the principal must first provide the sales representative with 90 days’ written notice setting forth the reason for the termination and the sales representative must be given 60 days from the date that notice is received to cure such material breach. Whether or not a sales representative cures a material breach is often an issue which can be problematic for the principal.

The MTSRA also allows the sales representative to request and recover reasonable attorneys’ fees and costs if the sales representative prevails in a claim under MTSRA.

Prior Amendments

MANA, over the years, along with its members and supporters has successfully advocated for strengthening the MTSRA.

In 2014, MANA successfully advocated for an amendment to the MTSRA which prevented out-of-state principals from inserting a different choice of law provision in its contracts, which would have otherwise circumvented Minnesota law. That amendment, which became effective August 1, 2014, provides that any such provision is void and not enforceable.

In 2017, MANA successfully advocated for an amendment to the MTSRA which clarified the definition of a wholesale order. The 2017 amendment made clear that a “wholesale order” under the MTSRA also includes “material, component, or part orders for use or incorporation into a product and later resold.” It was signed into law on May 2, 2017, and added substantial protection to sales representatives soliciting orders to OEMs.

The 2022 Amendment

The recent 2022 amendment to the MTSRA became effective August 1, 2022. It is significant because it prevents a principal from adding contractual terms, in a written sales representative agreement, requiring the sales representative to have a MTSRA claim be heard in the home state of the principal, or in a different state other than Minnesota. It now needs to be heard and decided in Minnesota.

From a practical and economical perspective, the 2022 amendment closed a loophole that diminished the Minnesota sales representative’s ability to get paid. Before the 2022 amendment, if a principal inserted language in a sales representative agreement requiring the Minnesota sales representative to have its commission claim heard in a foreign state, the rep would be forced to appear in that foreign state before a different, and sometimes hostile, jurisdiction. In addition, the sales representative would have to incur travel and lodging expenses, additional attorney’s fees, and other related costs, not to mention time away from the rep’s business. As of August 1, 2022, the MTSRA prohibits this unfair contractual term.

Conclusion

The 2022 amendment to the MTSRA, along with the 2014 and 2017 amendments, strengthens the law and provides greater protection for Minnesota manufacturers’ representatives. Passage of the amendment shows what can be achieved by belonging to an engaged national trade association such as MANA. A special thank you to MANA CEO Charles Cohon and General Manager Jerry Leth for their support and leadership.

Disclaimer: This article does not render any legal or other professional advice. Any person seeking such advice should hire an attorney who practices in this area of law.

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