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.

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

Sub-Rep Agreements for Sales Reps

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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

Look Before You Leap, or, He Who Hesitates Is Lost — A Lawyer’s Perspective

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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

Best Practices for Risk Management for Reps

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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

Beware of Principals Invoking Force Majeure to Avoid Paying COVID-19 Sales Commissions

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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

Fixing Rights and Responsibilities

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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

Toying With Rep Over Post‑Termination Commissions Ends in Game Over for Opportunistic Principal

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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

Contract Terms Matter — a Refresher

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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

Key Considerations in Assessing Potential Litigation for Independent Sales Reps

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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

Beware of the New Owner

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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

Seizing a Principal’s Assets Before Obtaining a Judgment

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“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

Your Principal Just Sold or Merged What About Your Sales Rep Contract?

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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

Protect Your Company: Understand Product Liability, Indemnity and Insurance

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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

Consider Your Contract Provisions

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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

Telecommunications Sales Commission Dispute

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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

Risk Management Strategies in Uncertain Economic Times

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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

Beware of the Definition of “Order” in Your Sales Representation Agreement

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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

Key Factors for Valuing a Sales Rep Agency

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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

Beware of the Difference Between “Expiration” and “Termination” in Your Sales Representation Agreement

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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

Principal Responsibilities

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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

What Happens in California Doesn’t Necessarily Stay in California (Part II)

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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

What Happens in California Doesn’t Necessarily Stay in California

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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

Our Contract Has Been Breached, What Now?

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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

Our Contract Has Been Breached, What Now?

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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

Justice Delayed Is Justice Denied

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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

Sometimes a Bad Contract Can Be a Good Thing

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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

Fire Damage Was Just the Beginning

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

Sales Reps Should Think About the End at the Beginning

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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

Don’t Cash That Check!

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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