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.

Major Publisher Mounts Defense to Rep Case

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Some manufacturers will initially consider a sales rep’s commission claim with sympathy, others with reasonableness, and perhaps most with nervous skepticism. Then there is The McGraw Hill Companies, Inc. (now known as McGraw Hill Financial, Inc.), a leading publisher of elementary school textbooks.

McGraw’s former educational division emptied the litigation arsenal in response to a claim brought by longtime independent sales rep, Shawn Kelly & Associates, for unpaid commissions (filed by this article’s author). It took the rep’s gritty determination to stand up for himself against a better funded, give-no-quarter defendant, for whom Kelly had netted millions in sales, to … Read the rest

Adding Value to Your Agency Through Long-Range and Succession Planning

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The purpose of this article is to identify guidelines for enhancing the value of your agency, as well as important items to consider in succession planning for your agency. The guidelines are based on the author’s experiences of being involved in more than 100 agency transitions. First, the stage will be set with a look at valuations, along with important structural elements and historical perspective. Then, we will examine some strategic planning points that might increase the consideration payable to you, if and when you decide to pass along your agency.

Valuation

Valuation in the rep agency world is elusive. … Read the rest

“I’ll See You at Arbitration!”

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You may have arbitration clauses in your rep contracts and wondered what, exactly, do they mean? You may have been advised by a friend to include an arbitration clause in your contract without really understanding the consequences. Arbitration is very different from litigation which takes place in the courtroom. Which brings up the question — do I want an arbitration clause in my contracts? Like many questions, the answer is a definite maybe.

What Exactly Is Arbitration?

Arbitration is a form of Alternate Dispute Resolution (ADR) where the parties agree to have their dispute heard by an arbitrator rather than … Read the rest

The Shareholder Agreement:
An Ounce of Prevention vs. a Pound of Cure

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It was Benjamin Franklin who once stated that “an ounce of prevention is worth a pound of cure.” He was telling us that it is better to try to avoid problems in the first place rather than try to fix them once they arise. For small entities serving as manufacturers’ representatives, an ounce of prevention may be found in a contract, often called a Shareholder Agreement, between its owners that specifies how the entity will be run and what happens when certain events occur. For entities with a small number of owners who are active in the daily business operations, … Read the rest

Don’t Be Fooled Again

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One of the services that we provide for our manufacturers’ representative clients is to review proposed sales representative agreements. Manufacturers’ representatives can sometime be fooled by language in the paragraph dealing with the term of the agreement which gives with one hand and takes away with the other. The manufacturers’ representative often focuses on the term of the agreement which often specifies a term of years and pays little attention to the provision that takes it away. For example the term of the agreement may be for three years. Later — and often in the same paragraph — there will … Read the rest

Sound Agreement Allows Telecommunications Agent to Avoid Getting Disconnected From Commissions

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Most agents properly focus on generating sales after signing with a new principal. Even as corporations constantly merge or get “restructured,” consideration of the potential impact on the agent is rare. Yet several important questions are usually presented:

  • Is the independent representative’s commission stream adequately protected?
  • What happens if the acquiring party purchases only some of the principal’s assets?
  • And could the principal and the new purchaser orchestrate a sale enabling the purchaser to avoid paying commissions due?

These issues were front and center in a case recently decided by a Kentucky federal court after certain assets of a principal … Read the rest

Say What You Mean and Mean What You Said

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Many independent sales representatives have shared this experience: after negotiating an agreement with a principal that gives the sales representative a right to commissions on sales to certain customers or within a certain geographical territory, the principal announces to the rep that he is converting a customer into a house account or taking away a territory that is clearly identified in the contract. Although this situation may be common, it can present a difficult challenge to the rep. What should he do?

The sales representative has a number of options, including:

  • He can continue representing the principal on the remaining
… Read the rest

How to Avoid Litigation Over Unpaid Sales Commissions

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Editor’s note: It’s always interesting to see parallels to representative-principal issues turn up in other industries. In this article we look at the similarities to the representative-principal relationship in the relationships between fashion showrooms (which operate somewhat like representatives) and fashion designers (which operate similarly to principals.)

It’s a common story in the fast-paced world of fashion showrooms: A designer (principal) wants his or her work featured in a showroom and access to the showroom owner’s (representative’s) contacts and relationships in order to sell his or her line. The showroom agrees and upholds its end of the bargain, selling millions … Read the rest

Key Contract Terms Every Agent Needs

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Although most manufacturers abide by the MANA code of ethics and pay their agents in a timely manner all commissions owed, sometimes unfortunate circumstances arise causing an agent not to be paid. In the case where litigation thus arises, it is critical to have certain key contract terms to protect your rights.

Having seen many different representation agreements (contracts between sales agents and their principals) presented by sales agents in a wide variety of industries, there seem to be several universally misunderstood, absent or poorly written terms:

  • Venue
  • “Choice of Law”
  • “ADR” (Alternative Dispute Resolution)

Each of these terms really … Read the rest

The Indemnification Clause: Proceed With Caution

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Many of our sales representative clients initially give very little consideration to the perceived “boiler-plate” clauses that appear near the end of their principals’ “standard” sales representative agreements. Their focus is on the granted territory, the commission rate, designation of house accounts and similar provisions which all reps deem of most importance. Nearly every sales representative agreement that I have seen contains an indemnification clause; but often the sales rep has not even read it, considering this clause to be just another unimportant “boiler-plate” provision. We counsel our clients that such perception is false. The existence and scope of the … Read the rest

The Importance of International Arbitrations in General Commercial Transactions

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I am a traditional trial lawyer based in the United States and primarily engaged in general business litigation. A sub-specialty of our firm is sales representative law. Many of our cases involve contract interpretation and performance issues, including customer/supplier warranty disputes. I was in practice a long time before international law and the international arbitration of disputes became important to our clientele. With globalization in the ever-shrinking world, however, our clients’ dealings with companies from around the world have increased rapidly and, as would be logical, disputes with these companies became as statistically common as with domestic companies.

As part … Read the rest

Independent Contractor or Employee?

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It’s a problem that faces small and large agencies alike. A principal wants to control every move the rep makes. Your regional manager starts telling you how many people to hire and sometimes whom to hire. He wants onerous frequent reports about how you spend your time, and he wants more of that time. In short, the company wants to treat you as an employee.

In the United States, most workers are either 1099 independent contractors or W-2 employees. But there is no such thing as a “1099 employee” or a “W-2 contractor.” Misclassification of a sales representative as a … Read the rest

Litigation is Expensive.
So, How Do I Afford It?

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You are a representative who has been terminated even though your written contract states that you cannot be fired until a certain condition precedent has occurred. Or you have improved or created a product or process, and your principal or your customer is marketing it as their own without providing you with any credit. Your friends and colleagues tell you that you should hire a lawyer and do something about it — and MANA has several excellent lawyers on its roster from which to choose — but you fear that any litigation would be too expensive to pursue. So do … Read the rest

Get Employee Sales Commission Plans in Writing — It Avoids Disputes and in Some States It’s the Law

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As independent sales representatives, you’re all too aware of the issues surrounding payment of commissions from your principals:

  • When are they earned?
  • When are they payable?
  • Your entitlement to commissions on backlog orders upon contract termination.
  • Your rights if the principal doesn’t pay.

These same issues pertain to the payment of commissions to your sales employees.

You’re also probably aware that many states have enacted statutes protecting your rights as an independent sales representative to payment of commissions by your principal. Many of these statutes levy multiple damages and attorney’s fees upon the principal for failure to pay commissions to … Read the rest

Understanding the Process of Negotiating the Settlement of a Sales Commission Case

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My firm is in the business of litigating sales commission disputes. That is virtually all that we do and we almost always represent the sales representative. Many times my client will ask me what we will be asking the defendant /principal to pay to settle the case. Obviously, that will depend on the case but our process is essentially as follows.

Calculate the amount of commissions which are due to date and those which will become due in the future.

This is generally the first step in the process. We calculate the amount of commissions due to date and then … Read the rest

What Happens When Your Principal Files For Bankruptcy

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All too often attorneys get inquiries from sales reps who have just received notice that one of their principals has filed for bankruptcy.

Invariably, their first question is whether they will get paid the commissions owed to them. Unfortunately, there is no simple answer, for bankruptcy cases involve many variables and technical issues that are controlled by the voluminous United States Bankruptcy Code (referred to in this article as the “Code”), which is subject to judicial interpretation and enforcement by the United States Bankruptcy Courts. As such, before answering that or any other of the rep’s questions, an attorney first … Read the rest

Sticky Contract Issues Lead Jury To Wrap $8 Million Verdict Around Business-Producing Rep, Including For Future Commissions

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It’s an old, even classic dilemma for independent sales reps, but it continues to play out across the country. Fueled by his own sweat equity over long hours and on his own nickel, an industrious rep scores a big customer contract for a principal. Rather than treating the rep to a steak dinner and a pledge to honor its contract by commissioning the rep on this new-found business, a notice of termination is issued. The principal then brushes off the rep: “We’ll pay you everything we owe you as of today, and best of luck in your future endeavors. What’s … Read the rest

Welcome to the Credit Markets: The Sales Representative as Loan Underwriter (Part 2)

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In the first installment of this article, I suggested a sales representative would do well to think of himself as the provider of unsecured credit to a principal. With that in mind, a representative should consider basic loan underwriting concepts when structuring an agreement with a new principal. The idea is to minimize the damage when the principal becomes unable to meet financial obligations to the representative.

At the contract negotiation stage, the need for the representative to think of himself as a banker providing credit on an unsecured basis applies most directly in the payment and remedies provisions of … Read the rest

Welcome to the Credit Markets: The Sales Representative as Loan Underwriter

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You may not have thought of yourself as a banker, but sales representatives are providers of commercial credit.

By keeping this in mind when entering into or deciding whether to continue or sever a relationship with a principal, a sales representative can minimize the damages it will incur if the principal becomes insolvent, by which I mean unable to pay commissions as they come due. There is always some level of risk that a principal will not pay commissions not out of malevolence, but due to inability. Business failure is always a possibility. The representative cannot do much to affect … Read the rest

Back to Basics: Why Contracts Can Be a Rep Agency’s Most Valuable Asset

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Successful sales reps talk about adding value. Reps provide service and expertise that help their customers operate more efficiently, and reps identify new customers and sales opportunities that help their principals grow. But reps are often so focused on getting the sale and running the day-to-day operations of their businesses that they don’t have the time to stop and think about how to add value to their own businesses — how to create a business that is as successful and saleable as possible.

Rep agencies don’t carry inventory and have limited tangible assets. So what are the assets of your … Read the rest

Minnesota’s Termination of Sales Representative Act

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In 1990, Minnesota enacted the Minnesota Termination of Sales Representative Act as codified in Minn. Stat. §325E.37 (hereinafter “MTSRA”). When it applies, the MTSRA provides a process of how and when a sales representative may be terminated by a principal.

Under the MTSRA, a “sales representative” means a person who contracts with a principal to solicit wholesale orders and is compensated, in whole or in part, by commission. Sales representative does not include a person who:

  • is an employee of the principal;
  • places orders or purchases for the person’s own account for resale;
  • holds the goods on a consignment basis
… Read the rest

Knowledge of Laws Critical for Sales Reps in Dealing with Principals

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An important step that each sales representative should take as part of a business strategy is to become familiar with the laws governing the relationship between sales reps and principals.

At a minimum, a basic understanding of sales representative laws in the state where the sales rep has its primary place of business is especially critical. This is because the majority of states, but not all, have recognized that protecting the rights and commissions of sales representatives is important as a matter of public policy. However, those public policy protections have taken shape through the enactment of specific statutes that … Read the rest

It’s Important to Understand How Your Lawyer Thinks

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One thing that I have learned in more than 30 years of practicing law is that it is important for the client to have a good understanding of the manner in which his or her lawyer thinks. I explain to my clients that lawyers are in the information processing business. Now that is not all that we do but it is an important part of it. We take large amounts of information and try to condense it down to a manageable level that we can present to a jury, judge or arbitrator to present a clear and concise case for

… Read the rest

Arbitration Provisions In Domestic Contracts

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photoThe art of negotiating a contract between a principal and an independent manufacturers’ representative is wholly dependent upon the deal being made. There are several important provisions contained in written agreements between a principal and a manufacturers’ rep, and each provision must be carefully considered.

One often misunderstood provision is the inclusion of an agreement to arbitration in lieu of using the court system to resolve disputes. Parties may incorrectly believe that arbitration is an inexpensive way to resolve matters and are often unaware that arbitration can be equally time-intensive. Unless the parties agree otherwise, in arbitration, the ability to … Read the rest

Preference Claims in Bankruptcies (A Primer for Manufacturers’ Reps)

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Imagine you are a representative for a principal who is struggling financially. You are owed commissions and have been patient in dealing with the principal’s slow pay. After many promises, you push the principal and finally, you receive a long-awaited commission check and life is good.

imageWithin three months of your receipt of the commission check (or checks), your principal files for bankruptcy protection. Several months later you receive a letter from the trustee appointed in the bankruptcy claiming your receipt of commissions was “preferential” and demanding that the payments you received be returned. You say to yourself, “How can … Read the rest

Do’s and Don’ts for Sales Reps Engaging Legal Counsel

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photoAt some time during the course of your business as an independent sales representative, you are likely to be faced with the necessity of engaging an attorney to represent your interests. It is recommended that you interview at least two to three attorneys prior to retaining counsel. To facilitate this exercise and make it seem somewhat less daunting, there are some basic tenets that anyone conducting such engagement process should follow. Consider the following four exercises.

Experience

Do: Sales representatives should search for counsel experienced in the particular matter in hand. MANA is an ideal source for such experienced counsel. … Read the rest

Complying with the Fair Labor Standard Act’s Overtime Requirements in a Hyper-Connected Workplace

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In a world in which computers and smart phones allow work to be performed at all times and in all locations, the concept of a 40‑hour workweek can often appear to be a relic of the past.

Perhaps that is the reason for the recent increase in claims and litigation under the Fair Labor Standards Act (FLSA), the federal law that requires an overtime premium to be paid once an employee works more than 40 hours in a week unless an exemption applies. The FLSA can be a surprisingly confusing law, with many factors that can transform seemingly exempt employees … Read the rest

Product Recommendations? How to Manage the Risks…

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Recommendations made by a manufacturer’s rep are an issue that arises all too often in the world of reps. It is important to set out a framework before describing how to best manage the issues associated with recommendations by reps.

Typical Situation

Successful manufacturers’ reps are frequently degreed professionals with many years of hands-on experience in their respective industries. They can be a wealth of knowledge when it comes to practical applications and performance criteria for products. Their knowledge and information can be invaluable to principals and customers, and is often key to closing a sale.

Rep Theory and Practice… Read the rest

Protecting Your Hard-Earned Assets From Creditors

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This is not our usual article dealing with rep issues, but is important to all manufacturers, reps and distributors and others who may accumulate wealth.

While many individuals place substantial emphasis on maximizing their earnings and accumulating wealth, many fewer individuals focus their attention on protecting their assets from creditors. Because of our increasingly litigious society, greater emphasis should be given to using available strategies to protect assets from creditors. While few — if any — asset protection strategies are ironclad, proper planning can make it more difficult for a creditor to attach assets of an individual. Some of the … Read the rest

Arbitration or Litigation: Which Is Best?

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Many of our sales representative clients give very little consideration to the perceived “boiler-plate” clauses that appear near the end of their principals’ “standard” sales representative agreements. Their focus is on the granted territory, the commission rate, designation of house accounts and similar provisions which all reps deem of most importance. However, one such typical “boiler-plate” clause seeks from the representative an agreement to waive an important constitutional right — the right to a trial by jury in order to resolve any dispute between the representative and the principal. When present, such a clause typically requires the parties to submit … Read the rest