Sales Rep Articles
This is the second of two articles on the effect that California law can have on businesses throughout the country and even abroad. Last month’s article delved into California’s recently enacted “AB5” statute which provides an “ABC” test to determine if a worker/service provider is an independent contractor or an employee.
For the prolific sales rep victimized by the withholding of commissions due, few moves will command greater attention from the principal than exercising the lawful self-help remedy of grabbing those unpaid commission dollars, then pursuing litigation.
California has recently enacted a number of new laws that can affect businesses throughout the country, including manufacturers and sales representatives. This multi-part article focuses on two of them: California Assembly Bill 5 (“AB5”), which provides a test to determine if a worker/service provider is an independent contractor or employee, and “Proposition 65,” which addresses environmental and health-related concerns about products sold in California.
Sales reps who make the difficult decision to take action upon suffering a contract breach oftentimes have to settle for the equivalent of a ground rule double. Perhaps the litigation results in recovering the unpaid sales commissions plus interest, but not the exemplary damages teased under a state statute.
Ordinarily, this column explores legal avenues available to protect the interests of independent sales reps, the willingness of courts to travel down such avenues, or both. Sometimes, however, developing an appropriate legal theory and filing a lawsuit (or arbitration demand) can prove the easy part.
William Valle’s commission lawsuit against Powertech Industrial Co. Ltd. offers a little bit of everything.
Two versions of a contract, changing commission rates, enforceability questions, and the duty of good faith and fair dealing are all raised in this dispute. (So too is the perennial employee v. independent contractor battle, but that part of their contest will be saved for another day.)
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.