have the most leverage to negotiate such a term. The amount of leverage any particular rep will have in negotiating for commissions above and beyond what is provided under applicable law obviously differs from one rep to the next. In certain situations, asking to be compensated for a period of time after the effective date of termination for sales to specific customers or of specific products is not unreasonable to ask for. Another common approach is to structure it as a payout equal to a percentage of commissions paid over the previous year, or some other period of time. One other possible approach is to provide for payment of a final flat rate similar to a severance in an employment contract.
Whether a rep has legal protections governing the termination of a relationship with a principal varies from state to state. Some states have no laws that specifically protect manufacturers’ representatives from recovering unpaid commissions, while others provide substantial protections afforded to them in the event of termination. While the commissions may not be governed by state laws, a rep can always negotiate the same protections as part of their written agreements.
In sum, it is important that a sales representative spend just as much time determining how their business relationships end as with the other terms of the agreement. By establishing relationships and developing sales contacts, a manufacturer’ rep can create a revenue stream that will sustain a principal for many years, yet without a strong termination clause, the independent sales representative could find themselves only sharing in the very initial fruits of their labor.
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Christopher Eibeler Christopher Eibeler is a founding member of the law firm of Smith Eibeler, LLC, located in Holmdel, New Jersey. Eibeler represents manufacturers’ representative clients in cases involving unpaid commissions, wrongful termination and commercial litigation. He also provides advice and counsel to manufacturers’ representatives in contract negotiations, non-compete agreements, wrongful terminations, and other areas of sales representative law. For more information visit www. jerseyemploymentlawyers. com.
Legally Speaking is a regular department in Agency Sales magazine. This column features articles from a variety of legal professionals and is intended to showcase their individual opinions only. The contents of this column should not be construed as personal legal advice; the opinions expressed herein are not the opinions of MANA, its management, or its directors.