The playing field between manufacturers and their independent sales representatives has been — and continues to be in many cases — patently uneven. In order to level the playing field, many states have passed specific laws protecting sales representatives from heavy-handed manufacturers. As of 2007, 38 of the 50 United States had laws on the books providing special rules for a non-salaried independent sales representative doing business with manufacturers (condolences to Alaska, Delaware, Hawaii, Idaho, Montana, Nevada, North Dakota, Rhode Island, South Dakota, Vermont, West Virginia and Wyoming).
Not surprisingly, each state’s laws are different and specific to the actions taking place within its borders. For example, a sales representative wronged in the State of New York could be entitled to double his or her damages, plus attorney’s fees[1]; but the same representative wronged in the State of Washington, despite its specific laws to protect independent sales representatives[2], is entitled to nothing more than his or her actual damages. In fact, as of 2007, the states of Washington and Virginia[3] were the only two states, among those that had laws to protect sales representatives, that did not so much as offer attorneys’ fees to the prevailing party of a commission dispute.
To understand how one of these laws might apply to a commission dispute, let us look at the California law as an example. The law is officially entitled the “Independent Wholesale Sales Representatives Contractual Relations Act of 1990[4],” but we will simply refer to it as the “Act.” The first part of the Act explains why the legislature passed the law in the first place, finding that independent sales representatives are a “key ingredient to the California economy” and should therefore be provided “unique protection from unjust termination.” In short, the Act was passed to “provide security” to the sales representatives.
A list of definitions is then set forth, defining “manufacturer,” “jobber,” “distributor,” “chargeback,” and “wholesale sales representative.” If the parties do not come within these definitions, then the Act will not apply to their situation. Notably, the “manufacturer” must intend a resale of its product “to, or [for] use by the consumers of [California].” Further, the definition of “wholesale sales representative” is limited to those who are paid — at least in part — by commission, and who neither buy product themselves for resale, nor take orders for direct sale to the ultimate consumer. Finally, the sales representative must “solicit wholesale orders at least partially within [California]” for the Act to apply.
A key provision of the Act, and an important note to be taken by all manufacturers, is that a contract between a manufacturer and a sales representative must be in writing. Further, the sales representative must sign a receipt actually acknowledging receipt of the signed contract. The written contract must contain certain provisions pertaining to the rate, time, and method of the commission payment, the territory assigned to the sales representative, any exceptions to the territory (such as “house accounts”), and what chargebacks will be made against the commissions, if any.
California law also requires that with each commission payment by a manufacturer, the sales representative is to be provided key information, such as an accounting of the orders for which payment is made, the rate of commission, and information relating to chargebacks, if any. Also, those clever lawmakers in California put in a provision prohibiting any party from waiving any rights under the Act: the Act trumps any contradictory contract language.
And now the good part (if you are a sales representative) — if a manufacturer willfully fails to enter into a written contract or willfully fails to pay commissions as set forth in the contract, the sales representative shall be entitled to treble (triple) damages, plus attorneys’ fees. One California court has opined that “willfulness” on the part of the manufacturer is not required to be successful under the Act, but willfulness is required to be awarded treble damages.[5] The same court opined that “willfulness” simply means intentional, and that no malice by the manufacturer is required.
Please note, however, that just like everything else in life, suing a manufacturer under the Act is not risk free. Attorneys’ fees shall be awarded to the “prevailing party,” so a sales representative who unsuccessfully sues a manufacturer under the Act could be looking at a very hefty legal bill.
A list of each state’s commission protection act, current as of 2007, is posted on the MANA website in the member area (hint: click on the “legislation” tab). Keep in mind that not only are laws revised from time to time, but they are also often interpreted by the courts as to how the laws should be applied in certain factual circumstances. Before taking a legal position on a commission dispute, please carefully consult the law and the cases interpreting the law to ensure that you are legally on solid ground. Better yet, consult an attorney with experience in “rep law” who can properly advise you as to your rights and obligations. A list of attorneys with experience in rep law may be found at the MANA website.