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.
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.