Spencer Fane LLP Logo

Manufacturer’s Corner: Know Thy Outside Sales Representative

Thank you for bearing with us while Pat and I prepared for trial.  The case ended up settling at the eleventh hour, but we learned some valuable lessons from it.  Please indulge this detour from our ongoing series on implied warranties, which will resume shortly.

We represented a manufacturer (of course).  The plaintiff contended that he was owed a commission on our client’s sale of a substantial piece of equipment, pursuant to an alleged oral agreement he entered with an employee of our client.  Our client’s position was that no such contract existed and, even if one did, the plaintiff failed to perform under it (long story).

The plaintiff faced a series of obstacles in recovering from our client, and those obstacles will serve as good learning tools for manufacturers.

The plaintiff had to plead and prove precisely what the terms of the oral contract were.  To the extent he could do that, it was essential to our client’s defense that we show the plaintiff did not abide by those terms.  Lesson 1: your contract should be written, and it should detail precisely what is required of an outside representative to entitle him or her to a commission. Must she obtain specifications for the purchase? Or must she merely make an introduction to the client?  Must she shepherd the sale through from beginning to end?  These obligations must be spelled out in detail.

The plaintiff also argued that he had reached an agreement with our client on sales of equipment, but not on sales of parts or services (again, long story).  Lesson 2: your contract should be clear about what it covers.  Does it extend to sales of major equipment?  What if the equipment includes parts manufactured by others, the cost of which you merely pass through to your customer without markup or with minimal markup?  Will you pay a commission on those pass through items?  And what about territory?  Within the territory allocated to the representative, are there existing clients on whom she is not allowed to call or receive a commission?

Now, our client’s position was that the plaintiff was not authorized to represent it at all.  How do you protect yourself against such interlopers?  Lesson 3: pay attention to your e-mail and voicemail, and keep in close contact with your customers.  If you get the sense that someone is trying to secure an agreement with you and may be calling on your customers (or thinking about calling on your customers), be sure you let that interloper know, in writing, that she’s not authorized to do that.  And you may also do yourself a favor by letting your customer know that the person is not authorized to act for you.

These are important lessons.  Understand that many states – Missouri and Illinois[1] included – have enacted special statutory protections for commissioned sales agents, which allow them enhanced damages in excess of claimed unpaid commissions, and a right to recover their attorneys’ fees from you.  In this instance, the damages award on a commission alleged to be a little over $200,000 would have been nearly $550,000 if the plaintiff prevailed (and that doesn’t account for attorneys’ fees).  Document your sales agreements well, and be sure you are on the lookout for anyone who may try to represent you without consent.


[1] The Illinois statute is limited to those who sell tangible products on commission.  The Missouri statute is not so limited, in that it also extends to sale of services.