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

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

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

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

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

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

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

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

“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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 … Read the rest

If you are new in the sales representative business and a principal offers you a territory with an established customer base for which commissions will be paid, do you take it without question? If you are a manufacturer who has decided to market new products via sales representatives, do you engage the first reputable sales representative to come across your desk? Should you look before you leap, or do you fear that if you hesitate the opportunity will wane?

Aesop’s “look before you leap” bedtime story tells about a thirsty fox who saw a big well nearby and peeped into … Read the rest

Risk management has been a popular topic in business circles for at least 10 years, if not longer. Larger enterprises have full departments dedicated to surfacing and addressing business risk. One way to enhance value for a rep agency, or any business for that matter, is to capture sales or other opportunities. Similarly, managing or reducing risk can also add value through prevented or protected losses.

The following reflects a framework for manufacturers’ reps to assess risk and pass along how suppliers and customers might also be dealing with and managing risk, in an effort to better understand each other’s … Read the rest

Demand for the sale of some products skyrocketed to record levels as a result of the unforeseen COVID-19 virus.

Manufacturers’ representatives who were fortunate to have product lines in PPE, medical equipment and other high demand Covid related products experienced significant spikes in their sales this past year. While increased sales should result in increased commissions, this was not always the case for some Covid related sales commissions. While most principals will continue to pay the earned commissions to their representatives, some may be tempted to invoke a force majeure clause contained in some sales commission agreements as a legal … Read the rest

I, like many lawyers, advise my clients to document what the deal is with the principal in a written contract and amendments to the contract, so that each party can consult the contract to determine what each party’s rights and responsibilities are and, where the parties have some dispute they cannot resolve, a judge and a jury can do likewise.

However, in giving this advice, I stress that documenting each party’s rights and responsibilities is not enough. The sales representative must also make certain that each party’s rights and responsibilities under the contract are settled and fixed, preferably in plain … Read the rest