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.

Accord and Satisfaction: How to Avoid the Surprising Elimination of Your Claims for Unpaid Commissions

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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

Maximizing the Value of Your Rep Firm

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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

Change of Control: How to Make Your Business More Valuable by Planning for Your Manufacturers Being Sold

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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

Non-Compete Language in Sales Rep Agreements

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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 Importance of the Termination Clause

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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

Tips to a Better Rep Agreement

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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

International Principals’ Contracts

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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

My Thoughts on Buy‑Sell Agreements for the Manufacturers’ Representative Sales Agency

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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.

The Question

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

The Principal’s Standard Contract vs. MANA’s Model Contract

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MANA members, principals and representatives can access the Manual for the Creation of a Rep‑Principal Agreement on the MANA website (MANAonline.org). Much thought has gone into this document, and it is a useful tool. This document has been generated by a team of MANA member lawyers who have represented both manufacturers and representatives.

Likewise, a good number of principals have a standard representative contract generated at significant cost and through years of favorable experience with other sales representatives.

So, which one should be used as a starting point? The answer, I suggest, is neither and both.

Too often a principal … Read the rest

Sub-Representative Contracts: Ensure Compatibility With Your Principal Agreements

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Contract Templates:
One Size Does Not Fit All

When using contract templates, sales agencies tend to think of them as one size fits all: Just insert the agency’s name, the other party’s name, the effective date, names in the signature blocks, and voila! You’ve created a ready-to-sign contract!

If Only It Worked That Way!

Contract templates are valuable; they address the issues important to a sales agency and incorporate “time-tested” language that defines what happens in case of a legal dispute.

However, the very definition of a “template” is that it is a standard form; and when one ponders this, … Read the rest

Protecting Your Contract and Post-Termination Commissions

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When a sales rep receives notice from the principal that the principal is terminating the contract, especially when this notice follows the placement of a sizeable purchase order from a customer before termination or the customer has established a multi-year program of anticipated future purchases that are not submitted as of termination, the sales rep will generally ask his lawyer a series of questions.

Typically, the questions will include, but not be limited to, the three questions below:

  • First, can my principal simply terminate my contract in bad faith to avoid paying me commissions on sales I have already made
… Read the rest

Effects of the GDPR: Are You Ready?

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What Is the GDPR?

The European Union’s General Data Protection Regulation, or “GDPR,” came into effect on May 25, 2018, causing a scramble of companies to update their privacy policies. Sales representatives who believe the regulation does not affect them because they are not located in a European Union country are gravely mistaken. Another common mistaken belief is that the GDPR only affects heavily technology-based companies or processes. However, the GDPR is technology neutral and those that process data through physical paper are equally affected. Thus, the reach of the GDPR is much broader than many believe; it regulates anyone … Read the rest

A Commissioned Sales Representative With a Contract …Who Doesn’t Have a Contract

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A commissioned sales representative called me recently with the following situation: Beginning in 2011, the agent served his pharmaceutical company as a commissioned sales representative on an independent contractor basis, receiving from the company a Form 1099 annually. The agent had a well-written, reasonably unambiguous contract with the company entitled “Independent Sales Representative Agreement.”

The agreement included standard terms that one would expect to see in these circumstances, such as the duration of the parties’ arrangement, the economic provisions addressing the sales commission percentages payable to the agent, when sales commission payments are owing to the agent, the agent’s geographic … Read the rest

Asset Sale Protection for Sales Representatives — Part Two

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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

Asset Sale Protection for Sales Representatives — Part One

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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

Assignment and Delegations of Contractual Obligations

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Parties enter into their contracts with the understanding that each will faithfully discharge their respective undertakings.

It is expected that each party will personally perform under the contract. Typically, contracts provide that the contract may not be assigned by a party without the consent of the other. But, what are the practical and thus legal restraints that these obligations impose on the parties? This article will address issues that may arise from a sales representative point of view, under such restraints, many of which may be avoided by simply anticipating possible future changes in the relationship with the principal.

Something … Read the rest

Don’t Negotiate Your Contract Backwards

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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

Employment and Sub‑Rep Independent Contractor Agreements

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Getting together with other people who will be involved with a manufacturers’ representative (manufacturers’ rep) as an employee or independent contractor (sub-rep) should be done with forethought by both the manufacturers’ rep and sub-rep from the beginning when they are first considering an alignment of resources.

The manufacturers’ rep who will usually be the one who has the direct relationship with the principal should have a full understanding with the sub-rep and the sub-rep should know what is expected of him or her.

First, let us look at the relative experience the sub-rep has in the field the manufacturers’ rep … Read the rest

How to Create Enforceable Contracts to Minimize Liability

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In Canada, every employment relationship is governed by a contract.

Although some employment contracts are written, setting out the terms and conditions of employment, the majority are verbal, comprised of the terms explicitly discussed with the employee, such as position and compensation, along with other terms implied by law.

The terms implied by law are designed to protect the employee. They include the requirement to provide “reasonable notice” upon termination of employment, which can be a significant cost of doing business.

Contracts help reduce such costs, minimize liability, provide certainty, and are an opportunity to set out the expectations of … Read the rest

Potential Ways Around 30-Day Termination Clauses — Part I

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Let’s face it. When it comes to sales rep-principal relationships, sustainability often boils down to “What have you done for me lately?”

That answer, unfortunately, is oftentimes “Not enough.” Or, we sometimes hear the term that principals want “added value” from their sales reps, which usually comes up when an agent is earning their hard-earned commissions on a longer-term basis. Having previously written about expedited terminations of sales reps, and having recently litigated some of these issues, in various jurisdictions throughout the United States, there are two different possible means to protect sales reps who must sign representation agreements with … Read the rest

Negotiating Win-Win Contracts

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A manufacturers’ representative calls me. He tells me that he began representing a manufacturer when it started 25 years ago. Joe had called him that morning. Joe is the son of good old Marty, the founder and owner of the company. Joe is fresh out of business school, and decided to take the company’s sales operations direct.

“I gave this company 25 years of my life, I took it from nothing to five million a year in my territory and now they’re firing me. How can they do that?”

I asked him to e-mail me his representative agreement and he … Read the rest

Settlement Achieved for Wrongfully Terminated Representative

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A naturally skilled product promoter based near Detroit, “Larry” served several different manufacturing company principals as a commissioned sales representative for more than 20 years.

The commissions that Larry received on product sales he procured generally varied between two and five percent of net sales, and he generally earned around $100,000-$200,000 per year. Larry had an undergraduate degree in finance from Michigan State University, an impressive Rolodex of purchasing department contacts at most Original Equipment Manufacturer (“OEM”) automotive companies operating in and near Detroit, as well as their tiered suppliers, and the quick wit and big smile that most successful … Read the rest

Taking Charge! A Proactive Approach to Handling Legal Problems

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After representing commissioned sales representatives for many years, I have come to recognize that perhaps the most daunting task facing a sales representative organization when presented with a serious legal issue is simply: “What in the heck do I do now?” The goal of this article is to provide a brief primer on how to be proactive, so you can avoid having to ask this question.

First and foremost, know your state law. So many reps think they are powerless, with no rights, and that’s simply not true. More than 35 states have enacted some kind of sales rep … Read the rest

From Toothless to Tigers: A Look at State Sales Rep Statutes

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“Hey, Adam,” begins many an incoming office call, “the principal who owes me back commissions didn’t remember that our contract says Tennessee law (or Utah, Colorado, New Jersey, Georgia, etc.) applies. I can get triple commissions, right?”

“Well,” begins the formal, technical response to many such calls, while stalling for time. Then, the very first legal phrase taught in law school is invoked: “That depends.”

Many independent reps are familiar with sales rep protection statutes. These state laws are generally intended to help level the playing field with their principals when a commission dispute arises.

When a rep is terminated … Read the rest

Three Best Practices for Reps

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With the improving economy and manufacturing activity on the rise, many reps and principals are entering agreements for new lines.

Although much effort is invested in developing relationships and securing new business opportunities, in the initial excitement and optimism, far too often important details of the representation are overlooked, which can cause major trouble down the road.

This article addresses three recurring contract situations and identifies some best practices for reps and principals facing those issues.

Best Practice # 1 — Set the Right Term (Length) for the Agreement

A key consideration is the term — or length — of … Read the rest

A Primer on Depositions

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Whether you find yourself pursuing a grievance in the judicial system or defending one, odds are you will become familiar with the deposition process. Either side in a lawsuit may take the deposition of the opposing side, as well as third parties who have some relevant connection to the litigation.

What Is a Deposition?

Simply put, a deposition is the process of asking face-to-face questions to elicit answers that are provided under oath. Typically, the deponent (the one answering the questions) is accompanied by his attorney to an office where the opposing attorney will be present with a court reporter. … Read the rest

Home Court Advantage

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MANA is doing its part to remind representatives and principals that from the moment the partnership is formed and throughout the time sales activities are conducted, both parties are best served by focusing on a win-win relationship. Any time that win-win relationship tips out of balance it puts at risk the success and profitability of both parties.

Principals who perceive themselves as the dominant partner are probably not MANA members, so this message is not addressed to MANA manufacturer members. But MANA representative members will from time to time represent a manufacturer less enlightened than most MANA manufacturer members, and … Read the rest

When the Hand That Feeds You Bites

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Dealing With Conflict With Your Current Manufacturers

One of the most difficult situations faced by sales representatives is when a dispute arises with a manufacturer that the sales rep still represents and wants to continue representing. When a sales rep is wrongfully terminated or has not been paid commissions that remain owed after the relationship with the manufacturer has ended, the rep can pursue all available avenues of relief — including litigation — if necessary.

When the sales representative agency still represents the manufacturer, the situation requires more finesse. There are rare situations where a sales agency decides to sue … Read the rest

Protect Your Company: Understand Product Liability, Indemnity and Insurance

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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 a bistro chair which overturned, severely injuring … Read the rest

Independent Sales Representative Laws and Delinquent or Unpaid Sales Commissions

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If your company makes use of commissioned independent sales representatives to sell its products, or if you are a commissioned independent sales representative, you need to understand your rights and obligations under various states’ Independent Sales Representative statutes. California, like 35 other states, including Washington and Oregon, has an Independent Sales Representative statute that is designed to protect independent sales representatives. These statutes go by various names, but they share the common goal of making sure independent sales representatives are timely paid the full amount of their commissions.

As a manufacturer or distributor, failing to understand and comply with your … Read the rest