Start at the End: Planning for Termination of Sales Representative Relationships

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Start at the End: Planning for Termination of Sales Representative Relationships

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.

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Banking and Finance, Beauty Industry, Contracts, Contracts, Business and Finance, Employment Law, Fashion, Food, Craft Beer and Nutrition, Litigation, Arbitration and Mediation, Manufacturing, Real Estate & Construction, Sales, Sales Commissions, Technology

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Manufacturers, Distributors and Reps Must Be Familiar with California’s Sales Rep Act

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Manufacturers, Distributors and Reps Must Be Familiar with California’s Sales Rep Act

Independent sales representatives are a vital part of many industries, from beauty products and electronics to simple plumbing materials like tankless water heater valves.  Independent sales reps often develop considerable expertise in both the customer base in their territories and their manufacturers’ or distributors’ products, while saving resources that the principal can better use toward product development and customer service after the sale.  Conkle, Kremer & Engel attorneys have extensive experience on behalf of both representatives and manufacturers/distributors/importers in strengthening those agency-principal relationships, and resolving commission, territorial or termination disputes when they arise.

In California, there is a relatively little-known statute that governs certain contractual requirements and responsibilities in a principal-sales representative relationship, called the Independent Wholesale Sales Representatives Contractual Relations Act (the “Sales Rep Act”) (California Civil Code § 1738.10).  The Sales Rep Act can be a powerful tool for sales reps, particularly because it offers the possibility of treble damages and attorney fees awards when the representative prevails.  For example, CK&E was counsel for a sales rep who was cheated out of his earned commissions by a principal who denied that it had ever agreed to pay those commissions.  After a jury trial, the sales rep received a jury award of $2.1 million that was then trebled to $6.2 million, plus attorney fees, after CK&E showed that the Sales Rep Act was properly applied in the situation at hand.  When the judgment was affirmed on appeal, that case became one of the most important published California court decisions about the correct application of the Sales Rep Act.   (Reilly v. Inquest Technology, 218 Cal. App. 4th 536 (2013)).

But like many powerful tools, the Sales Rep Act can be hazardous to either side when it is misapplied.  For sales representatives, distributors, manufacturers and importers alike, it is critically important to understand the requirements and potential effects of various factors to both the application and exceptions to the Sales Rep Act.  For example, in a recent matter, CK&E attorneys Eric S. Engel and Evan Pitchford represented a Southern California importer-distributor of plumbing parts that was sued by a terminated sales rep who sought treble damages for commissions claimed owed, plus attorney fees, under the Sales Rep Act.  CK&E was able to demonstrate in a pretrial motion that the sales rep had engaged in prohibited sales of certain parts to a purchaser who did not qualify under the Sales Rep Act.  Those sales precluded the sales rep from claiming the benefits of the Sales Rep Act, and limited the sales rep to just ordinary contract damages at most.  After the Court agreed that the claim under the Sales Rep Act was not available for this sales rep, the lawsuit was quickly settled.

These two examples demonstrate that intimate knowledge of how the Sales Rep Act operates is crucial for both sides of disputes between sales representatives and importers, manufacturers and distributors.  If you are an independent sales representative, distributor, or manufacturer that is facing commission, territorial or termination disputes, you would be well served to consult with counsel who is familiar with the very precise requirements of the Independent Wholesale Sales Representatives Contractual Relations Act (California Civil Code § 1738.10).

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Beauty Industry, Manufacturing, Sales, Sales Commissions, Technology

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CKE Publishes on Restraints of Trade Affecting Manufacturers’ Sales Reps

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CKE Publishes on Restraints of Trade Affecting Manufacturers’ Sales Reps

Conkle, Kremer & Engel represents commissioned sales representatives (“reps”) and manufacturers or distributors (often termed “principals”) who contract with them.  Often, contracts drafted by manufacturers or distributors include post-termination non-competition clauses that can be problematic in several respects.  California generally disallows non-competition clauses as unlawful restraints of trade, but it is often possible to have effective trade secret agreements that can substantially restrict a former representatives from working with competitors.  Further, reps and principals often work across state lines, and many states allow post-termination non-competition terms that are “reasonable” in scope.  Principals and reps must be conscious of which state’s law controls their agreement, and the state venue in which any dispute would be determined by a court or arbitrator.  To help reps and principals understand issues that they face, CK&E attorney Eric S. Engel contributed an article to the October 2016 edition of Agency Sales Magazine, published by the Manufacturers’ Agents National Association (MANA).  The October 2016 article, Limiting the Risks of Restraint of Trade, is the first of two parts addressing the enforceability of restraints of trade in various states, and methods to assure that a favorable venue is available if a dispute arises. Next month’s article will focus on the intersection of restraints of trade and trade secret protection.

 

 

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Beauty Industry, Contracts, Contracts, Business and Finance, Manufacturing, Sales, Sales Commissions, Technology, Trade Secret Misappropriation, Unfair Competition

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Conkle Firm Article Explains Special Protections for Sales Representatives

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Conkle Firm Article Explains Special Protections for Sales Representatives

The Conkle firm published an article in the June 30, 2015 edition of the Electronics Representatives Association Southern California’s member newsletter to explain to ERASoCal members the special protections that California law provides for independent wholesale sales representatives.  Among other points, the article describes the requirements for a signed written contract, the types of information that manufacturers and distributors are required to provide to their independent sales reps, and the potential for treble damages (three times the actual damages) plus attorney’s fees for violations.

The article was written by Conkle, Kremer & Engel attorney Eric S. Engel and CK&E’s summer law clerk Ryan Fisher, a student at University of California, Irvine Law School.  CK&E is proud to be a member of ERASoCal, which is a trade association of independent manufacturers sales representative firms in Southern California’s vibrant electronics industry.  Eric has significant experience in sales commission claims, and he was lead trial counsel in the case that resulted in the first published decision in California applying the special protections of Civil Code Section 1738.10 et seq., including treble damages and attorney fees for unpaid sales commissions: Reilly v Inquest Court of Appeal Decision, Case No. G046291 (July 31, 2013)

 

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JUL
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Beauty Industry, Contracts, Contracts, Business and Finance, Fashion, Food, Craft Beer and Nutrition, Manufacturing, Sales, Sales Commissions, Technology

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