Category Archives: Legally Speaking

Legally Speaking is a regular department in Agency Sales magazine. This column features articles from a variety of legal professionals and is intended to showcase their individual opinions only. The contents of this column should not be construed as personal legal advice; the opinions expressed herein are not the opinions of MANA, its management, or its directors.

More Clarity on When the Procuring Cause Doctrine Can Garner Post‑Termination Commissions

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Shocking but Not Uncommon Abuse of a Salesman

A genetic testing company and a sales/marketing specialist sign a contract naming the individual as VP of sales and marketing. The two-page contract provides for an annual base salary of $145,000 and for “at-will” employment. It also states: “Your commission will be 3.5 percent of your net sales.” The contract is slim and is absolutely silent on the issue of further commission rights upon termination.

The VP (as specifically requested by the company) negotiates a supply contract amendment with the number-one purchaser of the company’s products, to greatly extend … Read the rest

The New Beneficial Ownership Information Report: What a Small Business Needs to Know

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A civil fine of up to $591 per day. A criminal fine of up to $10,000 and imprisonment for up to two years. Or both.

On January 1, 2024, new federal reporting rules went into effect that affect millions of small businesses in the United States. In 2024, it is estimated that over 32 million business entities will be affected by these new rules and five million new companies with the same obligations each year thereafter. The overwhelming majority of manufacturers’ representative businesses, formed as corporations or limited liability companies, are affected by the new rules.

This article will highlight … Read the rest

Arbitration or Litigation — Which Should You Choose?

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A common topic during negotiations for a sales representation agreement is whether the parties should agree to binding arbitration to resolve any disputes rather than litigation in court. Sometimes a principal will request that the parties choose binding arbitration contending that arbitration is less expensive. This may or may not be true as I discuss below.

Some Benefits of Arbitration

The benefits of arbitration can include the following:

  • A shorter docket. Arbitrations can often result in a resolution in 12 months compared to 24 to 30 months or more in many lawsuits.
  • The parties have more control over the process.
… Read the rest

How to Win Your Case: Be Reasonable About It

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Disputes among principals and sales reps are inevitable. Some lead to lawsuits, mediations or arbitrations.

Contrary to popular belief, winning your case does not usually depend on hiring the most aggressive lawyer. Winning your case starts much earlier, when you negotiated your contract and when you and the principal were performing it. Like succeeding in sales, winning your case starts with preparing to win it.

One general principle that has been reaffirmed over my 40 years of litigation practice is that the reasonable party usually wins. You want to be perceived as the reasonable party. That is the person with … Read the rest

Better Termination Provisions for Sales Reps (And Why You Need Them)

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An electronics sales rep contacted our office and said he had been terminated after taking two years, and tens of visits with purchasers and engineers, to gain a lucrative design win from a new customer. Based on the rep’s prior dealings with this customer (on behalf of other principals) the rep was able to procure the key design win which had produced no sales as of the termination but would result in long‑term substantial sales after the termination. The win was clearly attributable to the rep, as evidenced by an attaboy email from the regional sales manager stating: “great design … Read the rest

Never Agree to Go to Timbuktu to Collect Your Commissions

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The Problem

Many of my clients represent principals based in foreign countries. Most of them represent automotive parts manufacturers. The automotive industry is a global industry. Many principals are based in Europe, China, Japan, India, Korea, and other countries. One of the topics in the negotiation of the sales representation agreement is often the state or country that will have jurisdiction and venue in the event of a dispute. Many principals will attempt to include a provision requiring any disputes to be resolved in their home country. I strongly recommend that any sales representative located in the United States or … Read the rest

Your Principal Sells Its Business: Now What?

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As a sales representative, you’ve spent years developing the brand name and recognition of your principal in the marketplace. You’ve generated new clients and coddled existing ones for your principal. Sales are up to the benefit of both representative and principal. Now, you’re told that the principal has sold its business and is moving on. Where does that leave you as a sales representative, especially with regard to your earned but unpaid commissions as of the date of the acquisition?

It depends on the answer to many questions as well as the relationship you may have with the buying and … Read the rest

Key Reasons to Have a Comprehensive Succession Plan in Place for Your Business

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You have invested time, money and sweat equity into your business. In the case of a family-owned operation, there may be generations of investment in the successful launch and growth of your business. Most business owners are deeply involved in the day-to-day demands of the business, and, because of that, too often we see business owners fail to carefully plan for an eventual day when they will no longer be in a position to operate the business. Then what?

Succession planning is a topic far too many businesspeople avoid discussing. It is understandable — similar to putting together a will, … Read the rest

Never Agree That Your Commission Rate Will Be Agreed Upon on a Job-By-Job Basis

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My sales representative client and his principal are beginning a relationship and are having a hard time agreeing on a commission rate for new business.

My clients often ask me for advice regarding a reasonable commission rate. I generally tell them that the commission rate is an economic issue that is part of the bargaining process. I am a firm believer that commission dollars are more important than commission rates. Both parties need to have a good understanding regarding the potential size of the programs that will be quoted. Often the principal will push for language that the parties will … Read the rest

Live to Fight Another Day

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This article addresses a problem that arises frequently in my law practice, namely, unilateral changes made by a principal to the sales commission agreement. These changes often happen quickly and without warning. Needless to say, unplanned reductions in take-home pay can cause significant angst for both the salesperson and his or her spouse.

The Big Question

“What should you do when your principal unilaterally reduces your commission rate?” The answer is: “That depends.” We are currently litigating a case that involves this exact problem. The key facts of that case are as follows:

  • Our client had an oral agreement with
… Read the rest

Risk Management: Navigating Employment Issues for Sales Agencies

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Running a manufacturers’ rep agency brings opportunities but at times can generate risks, especially when considering employment matters. This article presents an overview of those risks and suggestions for how to manage such risks.

Misclassifying Workers as “Independent Contractors”

Rep agencies use independent contractors or subreps for myriad reasons — “fit” for a particular situation, coverage for an open territory, flexibility and cost savings, as examples. While using independent contractors can provide significant benefits, misclassifying employees as independent contractors can lead to detrimental outcomes such as having to pay unpaid withholding taxes, back pay, penalties, fees and interest.

The IRS … Read the rest

The Dangers of Keeping Secrets

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Most contracts between a manufacturer and a sales representative contain a trade secret and confidential information provision. Typically, this provision is one-sided — it protects the trade secrets and confidential information of the manufacturer and fails to address any such information for the sales representative — generically describes categories of information, is overly broad and includes all or almost all the information of the manufacturer’s business and not just its true trade secrets and confidential information. It also has the sales representative admit that all categories of information are true trade secrets and confidential information, and that the sales representative … Read the rest

Thoughts on Succession Planning

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Having served as legal counsel to hundreds of sales representatives, perhaps the worst type of call that I receive is from an owner of a successful sales rep agency who has waited too long to think about — let alone implement — a succession plan, but who now has an urgent need for one.

In many instances, the urgency for having a succession plan is compelled by one of the agency’s principals (manufacturers), which has threatened termination unless an acceptable succession plan is in place by a given (typically short) deadline. But, what if you (as the owner) are not … Read the rest

Follow a Moral Compass — Five Years and Three Million Dollars

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“A man’s got to have a code, a creed to live by no matter his job.” — John Wayne

The concept of a moral compass is something I have given a lot of thought to over the years. Living my life by my moral compass is something I strive to do every day. Living by a moral compass to me means that a person has principles and values and tries to consistently conform his or her behavior to those principles and values. Primarily to me, this means being honest.

One of the things I have learned over the 40-plus years … Read the rest

Another Approach to Managing Procurement

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In an article that appeared in Agency Sales magazine within the last year, the author encouraged salespeople to work around and avoid the procurement department to consummate the sale.

I wanted to offer a different perspective on how working with the buyer can avoid delays in purchasing and payment, and even help close the sale faster.

For 20 years, I have presented contracts training to both procurement (purchasing) and sales departments of companies in various industries around the country. As a result, I’ve become familiar with companies’ purchasing and sales processes and policies. I’ve also been privy to both sales’ … Read the rest

Finalizing the Rep Agreement While Procuring Your First Order

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I am currently working behind the scenes with one of my sales rep clients in trying to finalize a sales rep agreement with an automotive parts supplier located in Europe. They have been working on this for many months.

The Problem

The principal was recently awarded close to $20 million in annual business from a major-tiered automotive supplier that was solicited and procured by my client. The original discussion before the business was awarded was that commissions would be paid at the rate of four percent of the net sales. This was included in the original draft of the sales … Read the rest

Internal Struggles — Know How Best to Divorce Your Business Partner

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This article is designed to provide some basic and little-known information on how certain business corporation laws prescribe how to separate from, buy out, and deal with a business partner with whom you no longer wish to work.

Like any contracting, it is always best to draft the initial agreements with your business partners carefully after studying and considering all potential issues, good or bad, that may arise during your relationship. Also, plan for your separation in the beginning. This up-front work and expense will always be worth it. Litigation over a separation and doing so with a not-so-well-thought-out shareholder … Read the rest

Beware of Commission Plans That Calculate Compensation as a Percentage of Profit

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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 Problem

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

Start at the End: Planning for Termination of the Principal-Representative Relationship

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No one likes to think about the potential end of a business relationship just when they finally succeeded in getting it off the ground. But for independent sales representatives, addressing the rep’s termination rights at the beginning can make the whole relationship with the principal work better, can extend the duration of the relationship and can protect the rep’s investment of time and resources in developing business for the principal.

So, you’re a rep in contract negotiations with a new principal that could substantially expand your business and bottom line. Great! You’re probably focused on primary issues like commission rates, … Read the rest

Arbitration — A Four‑Letter Word to Plaintiffs

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Alternative Dispute Resolution (ADR) refers to alternatives by which parties can keep a legal dispute out of the public court systems — Superior Courts in each state and U.S. District Courts around the country. That sounds like a very good idea on paper; but certain ADR agreements can be a death sentence for a good plaintiff’s case, depending on the level of damages.

Principals will normally include an ADR clause in their representation agreements. That might include agreements between the parties to mediate a dispute (submit the dispute to a “neutral” who tries to bring the parties together in a … Read the rest

Common Traits of a Successful Sales Representative (and a Good Lawyer) and How to Develop Them

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The substance of this article could possibly be better placed under one of the other departments of Agency Sales, but because I’m a lawyer with approximately four decades of experience representing sales representatives, I’ve come across some insights that I wanted to share, so it appears here under the department of “Legally Speaking.” There are good and bad lawyers and there are good and bad sales representatives. The good professionals have many common traits, and I’ve learned from experience ways of developing some of these (I didn’t learn them in law school).

A good lawyer, like a good sales … Read the rest

Key Contract Terms to Strengthen Rep Agreements

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Based on our significant experience reviewing and managing commission claims with manufacturers’ representative (rep) agreements with their suppliers, the author thought it might be helpful to go through a summary of these provisions and provide some helpful perspectives and best practices.

“Rep Theory”

The value of a manufacturers’ rep is fundamentally tied into relationships they have with customers and with suppliers (principals). It has been said that the assets of an agency “go home at night,” which is a reference to the intangible nature of their relationships. The rep functions as a drummer, facilitator, expediter and solicitor. As a general … Read the rest

How Signing a Sales Representative Agreement Is Like Buying a House

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Imagine you are buying a house. Let’s say it costs $400,000, so you put down 20 percent and get a mortgage for the rest. You renovate the kitchen. House prices go up. Three years after you bought the house, it is easily worth more than $500,000.

Would you buy the house and renovate the kitchen if the seller could take back the house on 30 days’ notice? Of course not. For most readers, this question will seem rhetorical.

Now imagine you take on a new line. You train your sales force on the products and spend time introducing them to … Read the rest

Minnesota Legislature Strengthens Termination of Sales Representative Act

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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. … Read the rest

Invisible Terms in Your Contract

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Most contracts contain a choice of law provision.

Typically, a choice of law provision identifies the law of a particular state that will govern the interpretation and enforcement of the contract. This provision is one of the most important and neglected provisions contained in a contract. By choosing the law of one state over another, the parties are, in effect, placing terms in their contract that are invisible to them at the time the contract is signed (unless the party has received advice from his attorney) but that will become quite apparent if the parties become involved in a dispute … Read the rest

Hell Hath No Fury Like a Principal Scorned — Part 2

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Sharp-eyed readers will recall that BI‑QEM, owner and operator of certain manufacturing facilities, was featured in the last edition of Agency Sales for the exceptionally “shabby treatment” it directed at Trade Links, its longtime exclusive rep. “In the lengthy annals of sales rep-principal relationships ending badly,” began the last column, BI-QEM’s conduct “deserves exceedingly prominent mention.”

Rather than clean up its act, in the nearly two years of ensuing litigation, BI-QEM stuck to its guns.

BI-QEM’s First Shot Was Not Even Close

To recap, back in 1999, the parties entered into a Sales Representative Agreement or SRA containing an initial … Read the rest

Hell Hath No Fury Like a Principal Scorned — Part 1

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In the lengthy annals of sales rep-principal relationships ending badly, the shabby treatment Elliott Essagof received from his principal deserves exceedingly prominent mention.

The business of Essagof and his Connecticut sales rep firm, Trade Links, LLC, doesn’t roll easily off the tongue. They promote the sale of products in the thermoset and plastics industry, focusing on urea and melamine molding compounds.

For decades, Trade Links represented Claudio Colombo’s companies located in Mexico and Italy. The Mexican facility is owned by BI-QEM Mexico, which Colombo also owns.

BI-QEM and Trade Links entered into a sales representative agreement (SRA) in 1999 that … Read the rest

Be Sure Your Sales Rep Agreement Has an Escape Route

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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.

The Problem

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

Legal Issues to Consider in 2022

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For several days in December most years, I clean out the cabinets in my house. I discard items I haven’t used in the past year and make a list of those things I need to fix or replenish. Unless I block out this time, it won’t get done.

While preparing this article, I thought about doing such an assessment for our businesses. As 2022 moves forward, you might want to reflect on the following legal issues.

1. Agreement Among Shareholders of Your Company

If your business has more than one shareholder or member, if for example it’s an LLC, you’ll … Read the rest

The Force of Force Majeure and Other Contract Performance Excuses in Supply Chain Transactions

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How best do suppliers navigate through the allocation of risk and damage associated with the forces placed on the supply chain by the COVID-19 pandemic?

In order to answer this question, we will need to understand the legal concepts which allow suppliers some degree of forgiveness, under certain circumstances, from the strictures of their supply agreements when unforeseen events prevent their timely supply of goods. Here is a brief overview of the current supply-chain climate and some legal concepts that may be invoked to relieve pressure of supplying needed goods that are in short supply.

Foreseeability and causation are key … Read the rest