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.

Liability and Other Insurance Requirements in Sales Representation Agreements

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Every two or three years MANA conducts an Attorney Forum. This is when attorneys from around the country who handle sales commission disputes and related matters involving principals and sales representatives get together in Chicago to discuss common issues and other matters that may be of interest to the association and its members. Frankly, it is nice to meet some of the other attorneys who do the same type of work as I do. It is also valuable for the attorneys because it allows them to form alliances with other members of the Attorney Forum for clients who have issues … Read the rest

Can Your Principal Not Pay Commissions and Enforce a Non‑Compete?

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Sales representatives can find themselves between a rock and a couple of hard places following termination by a principal. The sales rep may have not only lost a profitable line of business integral to his ongoing business model, but the principal may have failed to pay him all pre-termination and post-termination commissions the sales rep believes are owed to him and may have reminded the sales rep that the terminated contract contains a post-termination non-compete which the principal will not hesitate to enforce. Under these circumstances, does the principal get to have its cake and eat it too and continue … Read the rest

What is Your Agreement’s Term?

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Can you be terminated today for no reason?

Lawyers are a lot of things, but we are not magicians. Most times, we cannot make language in your agreement appear different than it actually is. The basic rule in contract interpretation, which is generally followed by the courts, is to give the words in a contract their plain and ordinary meaning. And if your contract lacks a term, then there is simply no term, expressed or implied.

One of the most common calls that I receive from independent manufacturers’ representatives is the one where she or he has just landed the … Read the rest

Trade Secret Protection Terms in Rep Agreements

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This is the second of two articles covering the subjects of restraint of trade and trade secrets. This article examines trade secret protection.

Yet another potential hurdle in the rep’s efforts to avoid or limit the principal’s desire to restrain post-termination competition arises in the form of the need to protect trade secrets, which is recognized in some manner by every state. Most states have adopted statutes that are based on the Uniform Trade Secrets Act (UTSA), and as of 2016 there is a new federal Defense of Trade Secrets Act, so there are some common features of trade secrets … Read the rest

Limiting the Risks of Restraint of Trade and Trade Secret Protection Terms in Rep Agreements

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This is the first of two articles covering the subjects of restraint of trade and trade secrets. The second part, which will appear in the November issue of Agency Sales, examines trade secret protection.

“Legally Speaking” articles in Agency Sales magazine have often emphasized the importance of carefully crafting the terms of independent sales representatives’ contracts with principals to avert any number of potential problems. Where possible, reps should use their own terms of agreement. But realistically, principals often want to impose their own terms. Reps naturally focus on the commission terms, territory, and exceptions such as house accounts … Read the rest

Non-Disclosure Agreements, the Uniform Trade Secret Act, and the Newly Enacted Defend Trade Secret Act of 2016

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In the business world non-disclosure agreements are used to ensure the protection of valuable information that is not readily known to the public. These Non-Disclosure Agreements can have different names, such as confidentiality agreement, secrecy agreement, proprietary information agreement or other names. The agreements are essentially an enforceable contract to protect information from being shared or used for an unintended illegitimate purpose.

Perhaps this is not as widely known, but regardless of whether there is a signed Non-Disclosure Agreement, the Uniform Trade Secrets Act (UTSA) prohibits a person from wrongfully disseminating trade secret information. In other words, even if a … Read the rest

30-Day Termination and the Covenant of Good Faith and Fair Dealing

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Does 30 Days Really Mean 30 Days?

The poison pill for any independent sales agent that relies on building up and establishing a territory, or booking business, is the dreaded 30-day at will termination provision. Unfortunately, such provisions are found in the great majority of sales agent contracts I see. Is the agent left with any leverage, legally speaking, when the principal complies with such a short termination notice provision? The answer, surprisingly, may be yes!

One doctrine that may override a poison pill provision in an agent’s contract is the Covenant of Good Faith and Fair Dealing. In … Read the rest

Contract Terms Matter

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Sales representatives are skilled at knowing and understanding the product they are selling, listening, reading a customer’s interest, promoting a product and being persistent. However, a sales representative’s enthusiasm to obtain a new principal or product line often results in a cursory or brief review of the actual sales representative agreement (referred to in this article as the “SRA”) which is usually prepared and presented to the sales representative by the principal. Failing to understand and participate in the negotiation and preparation of the terms in a written SRA can significantly affect the business of the sales representative during and … Read the rest

Reps Should Not Always Turn the Other Cheek

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Every experienced rep has stories like this to tell, most often from a relationship with a manufacturer who is not a MANA member.

Two and a half years invested in developing an account while receiving zero compensation, a rep meets with the first stirrings of success. The customer finally agrees to receive samples, and the rep happily reports this development to his partner, the manufacturer. The response is swift: termination. The samples, meanwhile, are on their way directly, and the deal with the customer closes soon after.

After enduring an uncertain relationship for years with a principal who pays late, … Read the rest

Don’t Trade a Brand New Cadillac for a Used Yugo

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I am in the midst of a sales representation agreement negotiation with a client of mine who represents principals to the automotive industry in Michigan. I have been in several similar negotiations over the past few years and thought that the issues may be of interest to MANA members, especially those who are sales representatives.

First of all, I should include somewhat of a disclaimer. My entire law practice is focused on representing sales representatives in commission disputes and related matters. Most of my clients represent principals to the automotive industry in North America and more and more of the … Read the rest

Your Best Principal Was Just Sold. Now What?

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Planning for Changes in Control and Welcoming Opportunities With the New Owner

Your best principal was just sold. Hearing those words is generally not welcome news to the established rep. In some cases, new relationships are forged and a mutually rewarding situation continues for the rep and new owner. In other cases, the new owner takes the business in a “different” direction, putting future sales and the rep’s commissions at risk.

In recent years, principal ownership changes have increased consistent with the trend of increased merger and acquisition activity. The purpose of this article is to provide guidelines and a … Read the rest

Making a Federal Case Out of It

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So, you’re a sales representative who has been wronged by a manufacturer that has its principal place of business in a neighboring state.
(Most likely not a MANA manufacturer member, in our experience, as that group tends to be respectful of its representatives and representative agreements.) You file a breach of contract action for $100,000 in damages in your home state since that is where all of your sales efforts took place. Shortly after officially serving the manufacturer with a copy of the lawsuit you are informed by your attorney that the case has been “removed” to federal court. Your … Read the rest

Questions to Ask Your Lawyer When You Have a Bad Day

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Imagine you have represented a certain manufacturer and provided increasing product sales for a number of years, if not decades. Then one day, you unexpectedly receive a termination notice from the account along with a dictate from the principal as to how the relationship will be wound down. After reading your contract, you disagree with this dictate. Worse yet, you then discover that your key salesperson (who has recently resigned from your company) has been identified by the principal to be its new representative in the same territory! It’s been a bad day! You decide to seek legal advice.

MANA’s … Read the rest

Dispute Resolution: Mediation, Arbitration and Litigation

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Occasionally, a sales representative becomes involved in a serious dispute with a principal. By “serious” I am referring to a dispute with potentially significant negative financial consequence to the representative. Examples of such would be a reduction in an agreed commission rate, the reduction or elimination of a representative’s territory, termination of the relationship, or an outright refusal to pay earned commissions. If informal negotiations prove unsuccessful, the parties will be faced with arbitration, litigation, or mediation as the means to resolve the dispute. This article discusses the features of these three types of dispute resolution.

Mediation refers to negotiations … Read the rest

Enforcement of a Contract With an International Entity

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Because of the growing representation of foreign entities by United States, Canadian, Mexican or South American sales representative firms (rep firms) it is important for rep firms to read and understand all of the terms of an agreement submitted by a foreign entity and for the rep firm to protect itself under the agreement. It is also important to understand the difficulties that may arise when suing and/or collecting on a judgment against a foreign entity. Some of these issues are highlighted below:

Payment Issues
There are often subtle, but critical, distinctions in the language used in and the ultimate … Read the rest

What to Do When Termination Is Likely

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The following article is reprinted with permission from PTRA (Power-Motion Technology Representatives Association), www.ptra.org.

This year, we received a phone call, like many we have gotten over the years, from an owner of a profitable independent manufacturers’ representative organization. He was serious and concerned. He explained that his company has several salespeople, a small support staff, and one manufacturer that accounts for almost 70 percent of its annual commissions. That manufacturer had recently been acquired by a larger company in the same industry and the majority of the acquiring company’s territories were covered by a direct sales force.

In my … Read the rest

Keeping Contracts Effective

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One of the ways that an independent sales representative can safeguard his business is to utilize effective contracts that are updated as circumstances change. Conversely, conducting business without the benefit of a written contract or under one that no longer reflects reality are likely to put the sales representative and his business in jeopardy.

Contracts establish the rules of the game. The sales representative should regularly establish and document the rules of the game with those with whom he conducts business. I have worked with many clients who have had disputes and/or lawsuits with others that could have been avoided … Read the rest

Home-Field Advantage

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In sports, there is no doubt that home-field advantage is quite significant and can mean the difference between winning and losing. In the book, Scorecasting, by Professors Tobias J. Moskowitz and L. Jon Wertheim, statistics were compiled on the probability of winning when teams play at home. It recorded soccer having the largest average home advantage ranging from 60 to almost 70 percent. In basketball, the NBA teams win approximately 62 percent of their home games; in cricket, the NHL and rugby, home teams win about 60 percent of the time.

Although not a game to most litigants, litigation, … Read the rest

Beware of Termination for Cause Language in Your Sales Representation Agreement

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My friends on MANA’s staff tell me that most MANA representative members report that the vast majority of their principals treat them honorably and respectfully. Most of the time commissions are paid on a timely basis and according to the terms of the written representative agreement. However, there are enough exceptions to that rule that the primary focus of my law practice is the representation of sales representatives in commission disputes.

A significant part of my practice includes drafting and negotiating sales representative agreements for our clients. One of the major pitfalls in sales representative agreements is language inserted by … Read the rest

Six Business Contracts Your Sales Agency Should Have

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Contracts with your co-owners, investors, employees and independent contractors are important to establish the guidelines and protect the relationships within your company.

1. Business Structure and Buyout Agreements

The documents establishing your business are themselves contracts among the owners. Articles of incorporation, by-laws, operating agreements of limited liability companies — all are contracts establishing the terms of the investment, and dividing profits, losses and responsibilities.

Whatever your form of business, if there is more than one owner, you should consider a “buyout agreement.” This will help avoid an unwanted and often disruptive change in ownership. Such crises can occur when … Read the rest

Including Essential Provisions in a Sales Representative Agreement

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Companies seeking a way to streamline their sales process and create time to focus on their product lines may find that sales representatives are an efficient and effective way to drive sales, perhaps by tapping into existing networks of prospective buyers or by allowing the company to reallocate its human resources to more pressing internal needs.

Since the sales representative agreement often ties the representative’s compensation to his work production through a commission structure, the incentives for both manufacturer and representative align. A well-drafted contract between the manufacturer and the representative can ensure a fair, mutually beneficial relationship.

When seeking … Read the rest

Prove It! Why Reps and Principals Need to Keep the Evidence

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“Oh yeah? Prove it!” Among schoolyard taunts, that one has a germ of truth. If you can’t prove you’re right, you probably won’t win. If you probably won’t win, there’s usually little sense in starting the fight — you’ll waste your time and money.

So if you’re an independent representative or a principal in a fight, how do you prove you’re right? Evidence. For lawyers, evidence is ammunition — if we have enough of the right kinds of evidence, we can win the battle for you. And if the other side understands that you have the evidence, a reasonable settlement … Read the rest

Misunderstood Contract Terms

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Many agents come to my firm with great confusion about the more “boilerplate” terms in their written contracts. There seem to be several universally misunderstood terms that just keep getting bandied about erroneously:

  • Venue
  • Jurisdiction
  • Choice of Law
  • ADR

Each of these terms, often referred to as boilerplate, should be included in your contract, especially when considering that your principals are often headquartered and operate in different states than you.

Venue is the place where a lawsuit or other form of dispute resolution will take place.

Jurisdiction means that a particular court has authority to hear a particular dispute.

Choice … Read the rest

Product Liability Claims: How to Minimize Your Exposure

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Most independent sales representatives are not involved in the design or manufacture of the products they sell. Moreover, they don’t consider the products they sell to be inherently dangerous. As a result, many sales representatives are not overly concerned about product liability claims, if at all. However, ignoring the possibility of such claims can be a big mistake, for regardless of the rep’s “limited” role in the underlying sale, and despite the seemingly benign or safe nature of the products being sold, sales representatives can be, and often are, included as defendants in product liability lawsuits — which can be … Read the rest

Exercising an Ounce of (Legal) Prevention

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Sam Salesdude is a sales representative in Minnesota who recently was unceremoniously terminated by Wonderful Widgets, Inc. On August 31, 2014, Steven Sales Manager apologetically told Sam that the company had decided to go in a different direction and Wonderful Widget was terminating Sam’s contract effective immediately. In fact, the contract required 30 days’ written notice. When Sam’s September commission check arrived, Wonderful did not include a commission statement and Sam estimated that his commissions were at least $20,000 short.

Sam should:

  1. Cash the check and call Steven the Manager at Wonderful to discuss the shortage.
  2. Tell Steve just what
… Read the rest

Minnesota Agents Gain Added Protection via Recent Amendment to Minnesota Termination of Sales Representative Act

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The Minnesota Legislature recently passed and Governor Dayton signed, a significant amendment to Minn. Stat. §325E.37, otherwise known as the Minnesota Termination of Sales Representative Act (“MTSRA”). The amendment passed with overwhelming bi-partisan support and essentially closes a loophole in the existing law. It will benefit certain independent contractor sales representatives as defined under the MTSRA.

Key Provisions

In the early 1990s the MTSRA was enacted in Minnesota. It was enacted to regulate the relationship between a manufacturer, wholesaler, assembler, or importer (referred to herein as the “principal”) and a sales representative, as defined under the MTSRA, with regard to … Read the rest

Another Peek at the Sales Representative Agreement and the Global Distribution of Goods

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MANA continuously endeavors to provide educational aids for its members, agents and principals alike. Its most constant reminder is that you should consult your attorney before embarking on your contractual relationships. This is because the law is ever changing and as attorneys we attempt to not only stay abreast of legal developments but when possible to anticipate and avoid problems for our clients. We prefer to practice “preventive” rather than “remedial” law. Despite the 45+ years that I have practiced in the area of law involving sales distribution, I still see things that are overlooked not only by business persons … Read the rest

The Procuring Cause Doctrine Enables Even Employees to Recover Post‑Termination Commissions

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This column ordinarily features legal issues confronting independent sales representatives who promote manufacturers’ products, not company reps involved in marketing the services of their employers. However, when Keith Miller maintained he was mistreated by his principal, who also happened to be his employer, it happened in a manner so brazen that all independent reps will not only feel his pain, but will respect and cheer his concerted efforts to get paid.

Employed for several years as a field sales representative for Paul M. Wolff Co., a subcontractor specializing in concrete finishing services known as PMW, Miller was responsible for facilitating … Read the rest

Term and Termination

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As business and business litigation attorneys our office has reviewed numerous written sales representative agreements. One of the most common questions asked by our clients is, “How can we protect ourselves in our written agreement?”

Some clients are only concerned about the post-termination provision. This provision dictates how long a representative will get paid commission after the termination of the agreement. In the OEM industry, the widely held post-termination commission provision is for the representative to be paid life of part/life of program commissions. While post-termination commissions is without question one of the most important provisions in a written agreement, … Read the rest

Navigating the Minefield — Contracts to Trials

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A trial is not about what happened. It is about who can prove and, in a sense, sell what happened. The judge is the purchasing agent. The competition is in the room with you, vigorously shooting holes in your presentation.

Agents manage expectations. Don’t promise the moon to land a principal. Principals, especially those new to the trade, or those who have previously only sold direct, may expect unreasonably quick results. Don’t fuel the fire. Principals will expect the miracles you promised. Beware of principals who are out for only one thing, the most beautiful thing in the world, free … Read the rest