commissions, many times, I must advise the rep who signed a contract enabling the principal to take such action that the rep has no legal recourse.
I hate delivering such news when I know the result could have been different had the rep taken the time at the start to understand the contents of the rep agreement. I greatly prefer calls from reps asking me to review and counsel them about a proposed contract before it is signed.
Sometimes principals are receptive to making changes to their contract form, and sometimes they refuse to do so, even when their contract contains typos, misinformation, outdated content, or inherent inconsistencies. However, in all instances, it is worth the effort to question and seek to revise bad contract terms. Even without referring a proposed contract to its attorney, the rep should still attempt to improve its terms. Reps have nothing to lose and everything to gain by doing so.
On average, I review, revise and negotiate three to four rep agreements every week. Some are fair, some are atrocious. Based on this experience, I offer 10 tips to consider when engaging a possible new principal and reviewing a proposed rep agreement:
1. First, make your deal— The material terms of the rep agreement should not come as a surprise. They should reflect what you already discussed and agreed to with the prospective principal. Are you going to be an exclusive or non-exclusive rep? How is your territory comprised? Is the term of your contract going to be for a set period of time or will it automatically renew and continue until terminated? What is the commission rate? All these issues should be addressed and agreed upon before you receive the rep agreement.
2. Read the contract carefully at least twice. Make sure that you understand it. Question inconsistencies— Every word, every phrase, and even punctuation in a contract has meaning and legal significance. Make sure the proposed rep agreement does not contain inherent contradictions. For instance, a contract that purports to have a one-year term, but which can be terminated without cause on 30-days’ notice is only a 30-day contract. Make sure it reflects your agreed upon terms.
3. Make sure the contract correctly identifies what you are and what you will do— You are an independent sales representative, not a broker, not an agent, not a distributor. Most independent sales representatives do not sell products. They solicit and promote the sale of products sold by their principals. The contract should not obligate you to sell or increase the sales of products in a territory. Sometimes you can’ t despite your best efforts. Such a provision may provide a principal with an excuse to terminate the contract“ for cause,” possibly providing the principal with an excuse not only to terminate, but to withhold commissions or post-termination commissions.
4. The commission provision must be clear and not subject to any unnecessary conditions— Getting paid is what it is all about. As such, make sure that you will get paid for your successful efforts. If you are an exclusive rep, meaning that you have an exclusive territory or account responsibilities, you should get a commission for all sales in the territory. Commissions should not be conditioned upon your“ satisfactory” performance of services. Avoid rep agreements naming