One of the cases my office is currently handling involves a commission agreement that requires the calculation of compensation as a percentage of profit.
The agreement provided that the principal would pay my client one-third of the “profit” for the sale of remanufactured air conditioner compressors sold to two customers.
Several years earlier, my client had procured the two customers for another remanufacturer of air conditioner compressors. When that manufacturer went out of business, my client purchased the remanufacturing equipment and started his own remanufacturing business. He continued selling remanufactured air conditioner compressors to the two customers for … Read the rest
I’ve had many clients over the years who have drafted their own sales representation agreements without the help of an attorney. While I encourage my sales rep clients to negotiate their own sales representation agreements, I strongly recommend that they send me any proposed drafts to review before they are sent to the other side.
A sales representative drafting their own agreement will often copy someone else’s agreement thinking that if it worked for their friend, it would also work for them. Not generally a good idea. Many of my sales rep clients are also engineers. My engineer … Read the rest
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 … Read the rest
Disclaimer — This article is based on my thoughts and my experiences in litigating sales commission disputes for more than 40 years, primarily in the automotive industry. Some of my comments regarding accountants and private equity firms may be somewhat over-generalized. I apologize in advance in case any reader is an accountant/consultant or owner of a private equity firm.
I’ve had several cases recently where principals, primarily automotive suppliers represented by independent manufacturers’ representatives, have been purchased in whole or in part by private equity firms. This often occurs when the primary owner, often one person, decides to … Read the rest
I represented sales representatives in two lawsuits recently where the definition of “Order” was a key issue.
Both cases involved the sale of automotive production parts but the principles in this article can be applied to any sales representation agreement that involves the sale of any kind of production parts pursuant to a blanket order with issuance of periodic releases. Both cases were litigated in Federal Court in Detroit.
The sales representation agreement in the first of the two cases had a “Definitions” section which included the following definition: “‘Orders’ shall mean a firm, contractual commitment by and … Read the rest
This article addresses the important distinction between “termination” and “expiration” of a sales representation agreement. I had a case several years ago where this was a central issue.
My client in that case was initially represented by an attorney who happened to be a golfing buddy of mine from Detroit Golf Club. Unfortunately, he was a general practitioner and was not very experienced in sales commissions disputes. My friend drafted a notice on behalf of the sales representative to inform the principal of the intention by the sales representative to “terminate” the sales representation agreement. That was the … Read the rest
I recently met with two clients of mine who worked together in a small sales rep agency. Their principal wanted them to start using a customer relationship management (CRM) software program to record sales contacts and myriad other information. They had both read my book and know that I caution salespeople about providing all their sales contacts and other details of their day-to-day work to their principal because such detailed information can be used to lay the foundation for their principal to go direct. In fact, one of the chapters in my book is entitled “Beware of the New Sales … Read the rest
I settled a lawsuit recently which involved a problem that I thought would be of interest to sales representatives.
My client was a golfing buddy of mine from The Detroit Golf Club. He sold automotive production parts. My friend had a long-term relationship with the owner of his principal based in another state. They had been close friends for more than 20 years. The owner decided that it was time to sell the company and to slow down and retire. The assets of the company were purchased by an investment firm located in the Northeast. My client was making a … Read the rest
I was working on a sales representation agreement for a client of mine recently involving his representation of an automotive supplier. An issue arose which I thought may be helpful for MANA sales representatives. I will first address some of my general thoughts regarding non-compete agreements for sales reps. I will then address the problem that arose that may be enlightening for MANA members.
The principal for the sales representation agreement I was working on insisted on a non-compete provision with language that prohibited the sales representative from representing any other principal with competing products during the term … Read the rest
I am a lawyer and not an accountant, so my approach to this topic may differ from attorneys who are also accountants or those who specialize in agreements for the sale of a business. Although this is a serious topic, I tried to have a little fun with it.
Occasionally in my law practice I am consulted by manufacturers’ representatives and their corporate lawyers with the request that I help them regarding the establishment of the value of an interest in a manufacturers’ representative sales agency for purposes of a shareholder buy-sell agreement or for the outright sale … Read the rest
This is the second part of a two part series on asset sale protection for sales representatives. I would strongly recommend that you read part one, published last month, either before or after reading this article.
What to do when your principal is in the process of selling its assets and your sales representation agreement has no asset sale protection language — I would venture to say that most sales representative agreements do not have asset sale protection language in them. The only times that I have seen such language in a sales representative agreement is when either the sales … Read the rest
This is the first part of a two-part series about asset sale protection for sales representatives. When I refer to asset sale protection I am referring to protecting your sales commissions in the event that your principal sells its assets to a third-party purchaser. This can be a very serious problem for sales representatives. The general rule is that the asset purchaser is typically only liable for the specific liabilities that it chooses to be responsible for or to “assume” as part of the Asset Purchase Agreement. Unfortunately for sales representatives, the sales representation agreement and the responsibility to pay … Read the rest
One of the reasons I write articles for Agency Sales magazine is that it saves me time. Since all that I do is represent sales representatives in sales commission disputes and related matters, I keep seeing the same problems but with different faces. It is like déjà vu all over again on a regular basis.
There have been countless times over the years that I have handed or e-mailed copies to my clients of the Agency Sales articles that I have written on a topic related to the client’s problem. I generally ask them to read the article(s) before we … Read the rest
Every two or three years MANA conducts an Attorney Forum. This is when attorneys from around the country who handle sales commission disputes and related matters involving principals and sales representatives get together in Chicago to discuss common issues and other matters that may be of interest to the association and its members. Frankly, it is nice to meet some of the other attorneys who do the same type of work as I do. It is also valuable for the attorneys because it allows them to form alliances with other members of the Attorney Forum for clients who have issues … Read the rest
I am in the midst of a sales representation agreement negotiation with a client of mine who represents principals to the automotive industry in Michigan. I have been in several similar negotiations over the past few years and thought that the issues may be of interest to MANA members, especially those who are sales representatives.
First of all, I should include somewhat of a disclaimer. My entire law practice is focused on representing sales representatives in commission disputes and related matters. Most of my clients represent principals to the automotive industry in North America and more and more of the … Read the rest
My friends on MANA’s staff tell me that most MANA representative members report that the vast majority of their principals treat them honorably and respectfully. Most of the time commissions are paid on a timely basis and according to the terms of the written representative agreement. However, there are enough exceptions to that rule that the primary focus of my law practice is the representation of sales representatives in commission disputes.
A significant part of my practice includes drafting and negotiating sales representative agreements for our clients. One of the major pitfalls in sales representative agreements is language inserted by … Read the rest
One of the services that we provide for our manufacturers’ representative clients is to review proposed sales representative agreements. Manufacturers’ representatives can sometime be fooled by language in the paragraph dealing with the term of the agreement which gives with one hand and takes away with the other. The manufacturers’ representative often focuses on the term of the agreement which often specifies a term of years and pays little attention to the provision that takes it away. For example the term of the agreement may be for three years. Later — and often in the same paragraph — there will … Read the rest
My firm is in the business of litigating sales commission disputes. That is virtually all that we do and we almost always represent the sales representative. Many times my client will ask me what we will be asking the defendant /principal to pay to settle the case. Obviously, that will depend on the case but our process is essentially as follows.
Calculate the amount of commissions which are due to date and those which will become due in the future.
This is generally the first step in the process. We calculate the amount of commissions due to date and then … Read the rest