The Importance of the Termination Clause
The negotiation of a manufacturers’ representative agreement is an essential step to begin the sales relationship of the principal and the manufacturers’ representative. While most every representative understands the importance of negotiating the terms concerning how their commissions will be calculated and paid, it is just as important to negotiate how the sales relationship can terminate. This is commonly referred to as a termination clause.
Negotiating the termination clause at the outset can be the most important term of the entire sales relationship for the manufacturers’ representative. Without a strong termination clause, a rep may find themselves with little to no protection or legal
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recourse if the principal decides to end the relationship without any notice. While many states have laws that protect the recovery of unpaid earned commissions, most state laws do not allow a manufacturers’ rep to recover commissions for sales that take place after the relationship is terminated. If a rep believes he or she should be entitled to commissions for sales that take place after the relationship is terminated, it is imperative that he or she negotiate the termination clause at the outset of the relationship.
A termination clause sets forth the terms and conditions of how the sales relationship will end by setting forth the obligations of both the principal and the rep in terminating the relationship.
One common way to determine how the relationship will end is by way of a voluntary termination clause. The right to voluntarily terminate the relationship can be provided to one or both of the parties to the agreement. The voluntary termination clause will usually include a notice provision