Frequently Asked Questions About Sales Representative Law
Our founding attorney, Clay Taylor, built his reputation as a trial lawyer in the niche area of sales commission litigation in jurisdictions throughout the United States.
He has presented many seminars to groups of independent sales representatives on their rights and remedies. Below he addresses some of the common questions that arise. While he tried to elaborate in his answers, you may have additional questions or unique circumstances. We invite you to call The Law Office of D. Clay Taylor at 612-355-8793 to discuss your specific legal dispute.
Should I always have a written contract with the companies I represent?
Here is the classic lawyer answer – it depends. First, certain states, like California and New York, have laws that mandate written contracts between sales representatives and manufacturers. So, check the law in your state, and if you live in one where the law requires a written contract, you should have one. Second, for everybody else, written contracts are nice in theory, but you should be very careful what you ask for. In practice, my sales clients are rarely presented with even-handed or even fair contracts.
They are generally 30 pages of very one-sided boilerplate, in favor of the manufacturer – choosing the law of an unfavorable state, requiring disputes to be litigated in a far-away court, limiting the sales agent’s right to commissions at the end of the relationship, and some even containing non-compete agreements that limit a sale representative’s right to earn a living in a particular industry or in their home territory when the relationship ends. In those circumstances where your state law does not require a written contract, my advice is that a sales agent simply send each new manufacturer a brief letter outlining the territory to be covered, the applicable commission rates, when commissions are to be paid (order receipt, shipment, customer payment); confirming that the manufacturer will provide documentation verifying commissions (commission statements, open order reports, shipping reports, etc.); and documenting whether house accounts are being reserved (or indicating that none have been designated). Generally, it is not necessary that anyone sign off on this letter. It is there simply to confirm the basic terms of the relationship, should they be disputed later.
What should I do if I am presented with an unfavorable contract?
The first thing you should do is change the things you don’t like. So many sales representatives think they have no power to bargain with manufacturers, and this thought is their worst enemy. All the company can say is “no,” and then you go into the deal with your eyes open. Often, the manufacturer’s reaction to reasonable changes will clearly indicate there will be a problem down the road. You may just decide you are better off not even getting involved.
What if I am presented with a contract that chooses the law of a state other than my home?
This is an issue that blindsides many sales representatives. Some courts have held that if a sales representative signs a contract, choosing the law of a state other than where he works or lives, he has waived any and all protection he may have under the laws of his home state –meaning that agent likely has no statutory rights or protection whatsoever. Some states have addressed this problem by amending their sales representative statutes to ensure that a choice of law provision, slipped into a lengthy contract, does not constitute a waiver of the salesman’s statutory rights (e.g., California, Georgia, New Jersey, New Hampshire). That is why it is critical that you check your state’s laws before signing any contract.
What if a manufacturer unilaterally reduces my territory, cuts my commission rate or takes my biggest account in-house?
This is a very common situation, and here are some thoughts on how to deal with it. First, check your applicable state law or your contract with the manufacturer to see if there is any limitation on the manufacturer’s right to undertake any of these actions. If the manufacturer did not reserve the right to make these changes in your contract, it may not have the discretion to do so unilaterally during the term of the contract. Second, make sure that the changes are not being implemented retroactively. Make sure and confirm in writing that the manufacturer is going to pay commission on all outstanding orders, existing programs or long-term customer contracts, even if the goods and services are to be delivered and paid for after the change goes into effect.
What are my options when I have been fired with a phone call?
First, make sure you get paid for the work you did before you were fired. How? Make sure you can document all open orders, ongoing long-term programs or master supplier agreements you obtained for the manufacturer. Immediately write the manufacturer a letter outlining the commissions you believe are outstanding on pending business or programs. Tell the manufacturer that you expect to be paid commission in a fashion consistent with past practice or your contract, and tell the manufacturer that you expect to continue to receive all documentation necessary for you to reconcile your commission account with them. Second, see if you live in a state, such as Minnesota or Wisconsin, that regulates and limits a manufacturer’s ability to terminate an independent sales representative. For example, Minnesota prohibits a manufacturer from firing a sales agent with the phone call, unless the agent is guilty of gross misconduct. Moreover, even if the manufacturer believes there is a performance reason to end the relationship, the law requires between 90 and 180 days advance notice before a sales representative can be fired.
What happens if a manufacturer refuses to pay me commissions after the end of our business relationship?
Many states have passed laws outlining when a commissioned salesperson is to be paid commissions when the relationship ends. There are many variations to each of these laws, but here are some common trends. Most of these statutes require payment within a certain period of time (grace period), and then impose a penalty if payment is not made. In some states, like Minnesota, the penalty is mandatory. In other states, like Illinois and Ohio, a penalty is imposed only if the failure to pay is “wanton or willful.” The amount of these statutory penalties also varies widely, but they are generally between one and three times the commissions owed.
If I have to sue a manufacturer over commissions or termination, can I also recover my attorneys’ fees and costs of litigation?
In many states, the statute allows the prevailing in dependent sales representative to recover reasonable costs and attorneys’ fees in addition to commissions, penalties and damages. This means that if you sue, and you win, the court may award you some or all of your fees and litigation expenses, in addition to any damages awarded. Some statutes award fees and costs to the prevailing party, meaning if you win, you will likely collect your costs and fees, but if you lose, you will have to pay your own expenses plus that of the manufacturer. Obviously, it is a good idea to have this understood with your attorney before initiating suit.
How do I go about choosing a lawyer to represent me?
My advice to all independent sales representatives is to establish a relationship with an attorney who not only understands the applicable laws, but also has extensive experience with how the sales and distribution business works. Ideally, this relationship should be established before there is a problem because many of the situations addressed here require very prompt action. This means you should avoid hiring a lawyer who is your neighbor or your buddy, or who does not practice in the area. You should not spend your money to educate your lawyer on how your business works. Get solid referrals from colleagues and trade associations. You should interview more than one lawyer – expect to pay for the time – because it is worth it to find an attorney whom you feel comfortable talking to and who is committed to giving you good business advice. Of course, avoid the guy who says, “Sue them now, sue them today.”