While sales rep protection statutes vary state to state, most contain a provision invalidating any contract term that would negate or limit the rights provided or would make the contract subject to the laws of a different state.
…An exploitative principal angling to replace its longtime independent rep and withhold the commissions due could find a means to escape the statute’s reach by stopping just short of affecting a full termination.
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.
… When a principal terminates a contract not for any legitimate or neutral reason, but to shed the rep before a sale closes and commissions become due, raising a bad faith claim, which may make additional damages available, should at least be explored.
Factors such as long-term and stable relationships with principals and customers, selling products with a promising future in the market, and the firm’s commission income stream on the rise, tend to increase the price.
With surprising regularity, principals are taking legally flawed positions when reps must resort to legal action to collect commissions due, particularly following a termination.
Sales rep lawsuits commonly seek to recover unpaid commissions following the termination of a rep contract.
Unscrupulous principals might originally plan to pay the agreed-upon commissions to their reps, and will perhaps honor the contract terms for a while, or at least until the orders start coming in reliably.
“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.
Most reps hunt for some valuable takeaways when a relationship with a principal ends badly. No hard searching was necessary after a recently completed rep-principal trial in Chicago, where the final count of useful "lessons learned" proved nearly as abundant as the sales rep's recovery.
In certain industries, sales reps are accustomed to fighting tooth and nail to recover commissions from manufacturers, both during and after their representation. And in situations where the rep procured sales before termination that do not close until after — when a new rep is in place — the hunt for commission dollars can grow fierce, even cutthroat.
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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.
A written rep contract is circulated, unsigned and quickly forgotten. Meanwhile, the parties perform for about eight years. When a dispute then arises, does the contract control?
Most terminations are telegraphed. Reps must pay attention to the warning signs. Consider Roger Rep’s plight:
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 and overseeing projects within his territory. When a project is awarded to PMW, the rep completes the final step toward earning a commission by managing the company’s performance through completion of the project.
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