A sales rep legal column that doesn’t speak of terminations or commissions? That doesn’t mention succession planning or tax issues? Not even a state sales rep statute?
What’s left to discuss?
Well, there’s Walter Blockmon III. Or more precisely, the late Walter Blockmon III.
One summer day back in 2014, Walter was cruising along on I-80 in a suburb south of Chicago. At the same time, Cutco Knives sales rep, Jakobi McClellan, all of 18 years old, was at the wheel of his mom’s car trying to reach his next sales call. Running late, McClellan was speeding while using the mapping and GPS functions of his cell phone instead of looking at the road. He rear-ended Walter, who did not survive the accident.
In addition to McClellan, Walter’s estate filed suit against Cutco Corp. and its subsidiary, Vector Marketing Corp., which markets, sells and distributes cutlery and other Cutco kitchen equipment. The estate claimed Cutco and Vector were vicariously liable for Walter’s death by failing to train McClellan not to use his cell phone while driving.
To establish such vicarious liability, the estate had to show that McClellan was not only a sales rep for Cutco and Vector at the time of the accident, but he was acting as their agent.
The main issues for the jury involved whether Vector and Cutco owed a legal duty to Walter and whether McClellan was operating as their agent at the time of the accident. Though offering some fascinating legal analysis, the duty issue does not neatly fit into a sales rep article.
More germane is the law of agency. While differing state to state, the principles followed in Illinois are not unique. “The Hallmark of agency,” according to Illinois courts, “is the principal’s right to control the manner in which the agent performs the work.” An independent contractor “undertakes to produce a certain result but is not controlled as to the method in which he obtains that result.”
Cutco and Vector fought hard at trial to show McClellan was an independent contractor, meaning they were not responsible for his actions. The Cook County jury disagreed, however, and entered a verdict in favor of the estate and against all three defendants for over $4.7 million.
In a very real sense, this outcome was almost as significant for McClellan as it was for Walter’s family. Had the jury determined that McClellan was treated as a legitimate independent, he could have been responsible for the entire verdict all by his teenage self. Naturally, Cutco and Vector appealed.
The rep agreement terms
The Vector rep agreement contained the usual language proclaiming McClellan to be an independent contractor. It sought to buttress this view by expressly stating he would not be treated as an employee for tax, worker’s or unemployment compensation purposes, and recited that he could set his own schedule and develop his marketing methods.
Other relevant terms in the rep contract stated that McClellan: lacked authority to incur liability in Vector’s name; needed prior written approval to use Vector’s or Cutco’s trade names or trademarks; and could not use the Vector or Cutco names on his business cards, stationery, advertisements, directories or social media.
As the jury learned, prior to the accident, McClellan had just graduated from high school and was hired by Vector with no sales experience. He attended a single group training session on how to demonstrate Cutco’s products, was told to dress professionally and handed a sales training manual.
After he e-signed Vector’s sales rep agreement, McClellan received a web ID and log-in information from Vector so he could place orders, and was loaned a Cutco knife sample kit. He testified that he considered himself a Vector employee. A desk and telephone at Vector’s office were made available to him, although McClellan acknowledged using his personal cell phone to schedule most demonstrations.
McClellan chose the hours and sales methods that he preferred, developed his own customers, and paid his own taxes. Vector did not reimburse for travel expenses or provide its reps with health insurance, company cars, cell phones, laptops, email accounts, or sales leads.
Reps were required to submit at least one order per week to remain active and to submit reports after performing sales presentations. Weekly sales meetings were held to help the rep “learn more so they can sell more,” but attendance was optional.
According to the Vector branch manager, McClellan “was serving not only his own needs and hopefully making a commission” at the time of his accident, but also serving Vector and Cutco. He further testified that a rep could serve as “an independent contractor for tax purposes but also an agent based upon right to control issues.”
After listening to all the evidence, the jury deliberated and entered a verdict in favor of Walter’s estate for a total of $4,768,351.47.
Vector and Cutco asserted on appeal that no evidence at trial showed they controlled “the means and manner” of McClellan’s performance of his activities, and in fact, the record showed the opposite. Not surprisingly, they cited to supporting language in the rep contract, and to such factors as McClellan choosing the manner of his performance, as well as the number and scheduling of hours worked; the use of his own car and gas; that he was not required to work out of the office or to attend the weekly sales meetings; that he could decide whether to offer sales presentation in person or online; and the payment of his own taxes.
Walter’s estate countered by pointing to various other indicators of employment, including that McClellan considered himself an employee; Vector and Cutco controlling whether reps could use their business cards or make internet sales; that sales presentations were to be performed consistent with the training received; that he was to have each customer cut food during demonstrations; that he was instructed to call his sales manager if trouble was encountered closing a sale; and that he was provided office space to make sales calls.
The appellate court also considered how the jury heard from the Vector branch manager that at the time of the accident, McClellan “was serving not only his own needs,” but also Vector’s and Cutco’s, and that a rep could act as an independent contractor and an agent simultaneously.
Because “there was evidence presented from which reasonable jurors might reach different conclusions on the issue of agency,” the appellate court could not disturb the jury’s verdict against all three defendants.
Ordinarily, reps and their principals share a common interest in carefully safeguarding the rep’s independent contractor status. It is usually with an eye on the potential tax liability that principals draft most rep contracts to steer clear of controlling the rep’s activities. That Walter’s estate was able to hold Vector and Cutco jointly liable for young Jakobi McClellan’s fatal car accident with Walter Blockmon III vividly shows the importance of drafting rep contracts and establishing roles for independent reps that honor and preserve their independence.
This article appears in the Representor, a publication offered through the ERA.