Conkle, Kremer & Engel attorney Evan Pitchford recently published Start at the End: Planning for Termination of the Principal-Representative Relationship in the April 2023 edition of Agency Sales, the nationwide publication of the Manufacturers & Agents National Association (MANA). Although no one likes to think about the potential end of a business relationship just when they finally succeeded in getting it off the ground, it is wise for sales representatives and principals alike to do just that.
Thoughtful preparation for the eventual termination of the sales representatives’ relationship will greatly improve the relationship throughout its existence, by making clear the terms that will apply as it comes to an end. To understand their ongoing duties to each other, both parties should clearly understand the consequences of a termination under the various circumstances that may apply, such as a change by the principal to direct sales, contractual breaches, or just dissatisfaction of either side. Specialized state statutes directed to sales representative contracts sometimes limit some of the termination provisions, but such statutes typically allow the parties to establish most or all of the terms for themselves. It is definitely not wise for either side to just assume an applicable state statute will define what happens upon termination.
There are a great many options for termination provisions, including absolute cutoffs upon termination (which may be subject to “procuring cause” post-termination sales commission claims in some states), to timed durations of sales commission tails based on when the commission is considered earned, to phased termination extending commission tale periods based on longevity or achievement. The only limits to the terms that can be agreed upon are the requirements of each state’s specialized sales commission statutes and the imagination and negotiating leverage of the parties. Parties considering sales commission agreements are well-advised to seek the counsel of attorneys who are very familiar with sales representatives laws and practices, such as attorneys at the Conkle firm.