Tech 4 Kids, Inc., makes toys, but was unable to play to U.S. retailers.

So T4K reached an oral agreement with Northern Group, Inc., an independent sales representative with offices in the Midwest, to promote its toy products. With no T4K market share, the parties understood that Northern would have to enter “pioneering mode” because it would take years to generate sales.

The Parties Reach an Agreement and Northern Sets Out Creating Demand

The oral agreement, reached in 2008, provided that Northern would receive a five percent commission on sales it procured for T4K. Not surprisingly, the parties never discussed … Read the rest

A sound example of a small business that exemplifies the entrepreneurial spirit is the independent sales representative (referred to in this article as the “sales representative”).

Sales representatives work hard, at their own expense, in soliciting and developing business for a principal. They are skilled at developing relationships and promoting a principal’s product. Regrettably, in some situations, a sales representative only takes a cursory look when a principal presents the sales representative with a Sales Representative Agreement (referred to in this article as the “SRA”). A sound SRA can benefit the sales representative in the midst of and after its … Read the rest

Whenever a sales rep contacts our firm about a sales commission dispute, we evaluate several initial factors before deciding whether or not to proceed with a case:

• What are the known or estimated damages under the contract?
• Which states’ sales commission protection laws might apply to the dispute?
• What is the best our client can do, monetarily?
• What is the worst our client can do, monetarily?

What Are the Known or Estimated Damages?

This can sometimes be difficult to assess because usually customers’ commercial relationships and ordering processes are with the principal, not with the rep. Most often, orders are … 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.

The Problem

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

“Money is the most egalitarian force in society. It confers power on whoever holds it.” — Roger Starr, author and urban planning official

Reps who get stiffed on commissions usually agonize over what, if anything, to do about it. After undergoing root canals or tax audits, hiring a lawyer to pursue unpaid commissions usually ranks as a rep’s least desirable course of action.

Some might even prefer the endodontic drilling into a tooth to retaining legal counsel. And without anesthetic.

After all, withholding commissions is an easy and common exploitative tactic utilized by certain principals who view their sales reps … Read the rest

Lawyers who represent sales representatives often are faced with cases in which a sales rep has signed a sales rep agreement with a principal and then that principal goes through some change in ownership, either through a sale or merger, but the emerging principal may or may not be the same or continuation of the same company with which the rep originally signed a contract.

Is the principal still bound by the terms of the original contract and, if not, what terms apply? Not surprisingly, when faced with such questions, we, lawyers, usually respond with: “It depends.”

And when a … Read the rest

Reprinted from April 2017, Agency Sales magazine

My client, an independent sales representative, was named as a defendant in a product liability lawsuit. Admittedly, that’s not the norm, but this article should serve as a cautionary tale to consider issues of product liability, indemnity and insurance when negotiating contracts with your principals.

My client’s rep firm represents manufacturers of commercial office and restaurant furniture. Not particularly dangerous stuff, right?

Her firm solicited an order from a restaurant for the sale of bistro chairs and tables. Five years after the restaurant received the furniture, a restaurant patron took a seat on … Read the rest

This article will emphasize the importance of having a good underlying written contract between sales representatives and their principals. While “form” agreements may be available and are often used to attempt to recite the business relationship between parties, there is no substitute for a well-thought-out agreement that recites and accurately presents the relationship that the parties intend to follow.

In order to achieve this, an agreement must not only recite the undertakings by the parties but these must be viewed and clearly stated as obligations. Further, the contract should be one that embodies the laws of the state where, at … Read the rest

The Rep and the Principal

“Byron” is one of the most prolific sales agents of telecommunications products and services in the country. He had previously served as a sales agent for a major publicly traded telecommunications industry leader.

“DCA” is a company that provides telecommunications products and services to customers in several states. Before 2010, DCA was a small company with a few million dollars of annual revenue primarily serving individuals who resided near its primary office location. It had no major corporate customers.

“Karl” and his brother “Sam” founded DCA in the 1990s. Karl and Sam had poured decades … Read the rest

Generally, the day-to-day life of a manufacturers’ rep is not filled with product liability risks or other situations where indemnification (reimbursement) of claims are a concern. However, based on the authors’ experiences with both claims management and defending manufacturers’ reps, we thought it important to identify the likely risk management environment within which most reps function. Then a set of strategies for minimizing risk will be described.

Framework

Manufacturers’ reps are generally solicitors, drummers and expediters. They do not take title or responsibility for the products they sell. Instead, a manufacturer has designed and engineered the product and, as such, … 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 Problem

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

As the rep industry begins to age, it is important to have a succession plan for the benefit of the next generation of employees, as well as the agency’s principals and customers. A well thought out and crafted succession plan will provide for continuity of the agency and will benefit all parties in the event of death, disability or retirement of the owners.

Arrangements for buying or selling a rep agency require an evaluation of the business. Both buyers and sellers should require the use of a reasoned evaluation for determining how much the agency is worth and thus, how … 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.

The Problem

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

Lawyers rarely tire of advising their clients of the importance of contracts. After all, the contract establishes the rules that both parties are supposed to honor and, in the event that there is a dispute between the parties, the contract gives the court and jury a list of rights and responsibilities that each party has.

Of course, and as an example, this list of rights and responsibilities will be the starting point that a court and jury will use in deciding whether the sales representative is entitled to the disputed commissions it claims it is entitled to receive or the … Read the rest

This is the second of two articles on the effect that California law can have on businesses throughout the country and even abroad. Last month’s article delved into California’s recently enacted “AB5” statute which provides an “ABC” test to determine if a worker/service provider is an independent contractor or an employee. AB5 was enacted in response to the new “gig” economy in which businesses seek to utilize independent contractors, as opposed to direct employees, to sell their services and products in an effort to avoid employment-related benefits and legal obligations. The scope of that statute, of course, is important to … Read the rest

California has recently enacted a number of new laws that can affect businesses throughout the country, including manufacturers and sales representatives. This multi-part article focuses on two of them: California Assembly Bill 5 (“AB5”), which provides a test to determine if a worker/service provider is an independent contractor or employee, and “Proposition 65,” which addresses environmental and health-related concerns about products sold in California.

Why should I be concerned about these statutes if my company is not located in California, you ask? It’s a good question. Well, whether your company is in San Diego, San Antonio, Saint Augustine or points … Read the rest

A Sales Rep’s Options if Their Principal Breaches the Contract and How to Prevent It

Part Two

Author’s note: When our firm is contacted by a rep whose contract has been breached, overwhelmingly the principal in question is not a MANA manufacturer member.

Option 1: Trying to get the principal to retract a commission reduction or sign a more protective contract

This may be useful in situations where the principal could be liable for the payment of long-term sales commissions, based on either the Procuring Cause Doctrine, a violation of the Covenant of Good Faith and Fair Dealing; … Read the rest

A Sales Rep’s Options if Their Principal Breaches the Contract and How to Prevent It

Part One

One of the most common and pertinent questions I get from sales reps is, “My principal breached one of the commission payment requirements of the contract but they are still paying me on other sales. What should I do?” That’s a very good question that depends on the circumstances. My intent in this article is to explore the various options.

You signed a representation agreement with a highly desirable manufacturer, and although it took several years to cultivate business, you landed the big … Read the rest

This legal maxim essentially means that if a legal remedy is available to a party to redress an injury or wrong but is not acted upon in a reasonable time frame, it is effectively the same as having no remedy at all. William Penn similarly stated: “To delay justice is injustice,” and Martin Luther King Jr. wrote in his Letter From Birmingham Jail: “Justice too long delayed is justice denied.”

Recently, a rep contacted me to request my assistance in recovering more than $100,000 in commission she stated was owed to her by a principal. This is a substantial sum … 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

An e-mail from MANA and PTRA member Adam Cooler of the J.W. Cooler company led us to dig in our archives and revisit this December 2005 Agency Sales magazine article on subrogation.

“For warehousing reps, the risks of subrogation remain the same today as when this article was first published in Agency Sales. It is important to review risk coverage with your insurance agent and attorney to confirm that you are properly protected,” says Gerald Newman, partner at law firm Schoenberg Finkel Newman & Rosenberg, LLC, who was quoted in the original article.

After a fire destroyed his warehouse … Read the rest

When sales reps enter into a new contract with a principal, they’re understandably most focused on what’s happening right now:

• Will it be an exclusive?
• What will the territory be?
• What will the carve-outs be?
• What will the commission rates be?

Few sales reps focus on what will happen when the relationship will end. And make no mistake, it will end — the question is when and what will happen when it does.

Fast forward some years, when some of the excitement of the new relationship has subsided. You’ve spent huge amounts of time, money and resources to develop 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

The Scenario

You had a good year — you finally got that huge OEM account with AcmeCo qualified and the purchase orders are starting to roll in. You figure your hard work over the past 18 months is finally starting to pay off and you’re looking forward to your well-earned reward.

The problem is your principal is starting to think hard about all those commissions you’re about to make. A little friction is starting to build as your principal seems to be a bit slow in making payments on the new AcmeCo purchase orders, making excuses rather than payments. The … Read the rest

This article provides the highlights of the MANA special report on valuing your rep firm. You are in the best position to understand the factors impacting the value of your rep firm through your day-to-day management and operation of your agency. Where you and your agency stand on a number of valuation drivers will have a major impact on the cash flow and eventual value of your agency should you ever decide to sell it.

Valuation Drivers

Having good relationships with multiple customers can significantly enhance the value of your agency. A simple phone call may provide you with the … Read the rest

In the 72 hours before I sat down to write this article, the owners of three different sales representative agencies called me with concerns because one of their manufacturers was being purchased. These acquisitions often take sales representatives by surprise, asking themselves what rights they have and what will happen next.

What to do and not to do when one of your manufacturers is sold will be the subject of a future article for Agency Sales. But the purpose of this article is to get you thinking about how to anticipate the possibility of your manufacturers getting sold, plan … 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.

General Thoughts

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

The negotiation of a manufacturers’ representative agreement is an essential step to begin the sales relationship of the principal and the manufacturers’ representative. While most every representative understands the importance of negotiating the terms concerning how their commissions will be calculated and paid, it is just as important to negotiate how the sales relationship can terminate. This is commonly referred to as a termination clause.

Negotiating the termination clause at the outset can be the most important term of the entire sales relationship for the manufacturers’ representative. Without a strong termination clause, a rep may find themselves with little to … Read the rest

A sales representative typically will review a sales representative agreement twice — at the start of its relationship with a new principal, and then at the end.

If the rep takes the time to read, understand, question, and yes, even negotiate the terms of a rep agreement at the start, there should be no surprises, and hopefully no problems, at the end. It’s the difference between fire prevention and extinguishing a raging fire. But, too often, reps belatedly learn that their multi-year contracts can be terminated upon 30-days’ notice, or that they won’t receive post-termination commissions, or that their principal … Read the rest

You contact or are contacted by an international company to represent it (or maybe you already do). You are joyful of the opportunity and you are anxious to handle the products that this principal has available and think it will be an easy opportunity to sell the products to the potential customers that you currently call on, or on a new market you are interested in pursuing. So you approach the potential principal and after some discussions your agency and the potential principal want to set up a meeting to see if a deal with you to represent it makes … Read the rest