Sub-Rep Contracts - Protect Your Commissions
What Are Sub-Rep Contracts?
- Overview of sub-rep Contracts in independent sales rep relationships.
A sub-rep agreement is a contract between an independent sales rep and the Agency for whom they work, which guides the relationship in its entirety, addressing everything from how and when commissions are earned, to when the agreement may be terminated, and what responsibilities are required of the sub-rep and the Agency.
- Importance of clear terms
Key provisions will specifically define the roles of both the Agency and the sub-rep, as well as commission and termination rights. Clearly drafted provisions will help the parties avoid disputes and lawsuits.
Non-compete provisions may be required by the Agency. The sub-rep should contact an attorney familiar with the law pertaining to sales reps to review the non- compete provisions, before signing the contract.
Confidentiality provisions, may also be included in the typical sub-rep contract. Don’t look at these provisions as boilerplate. They are important terms that can affect the long-term relationship.
- Guidelines from Professional Associations
The Manufacturers’ Agents National Association (MANA) has recommended provisions for use by sales reps in their Sales Representation Agreements.
Members of the National Association of Sales Professionals (NASP), the Association of Independent Manufacturers Representatives (AIM/R), the Motor & Equipment Manufacturers Association (MEMA), the National Electrical Manufacturers Representatives Association (NEMRA), the Power-Motion Technology Representatives Association (PTRA), and the Independent Sales Representatives Association (ISRA) may likewise have access to MANA’s recommended provisions.
Need help negotiating, drafting, reviewing, or enforcing a sub-rep contract? Contact our attorneys today for a free consultation.
Common Issues in Sub-Rep Contracts
- Breach of Contract (Failure to meet non-commission obligations stated in the agreement.)
- Commission Splits and Payment Terms (Disputes over percentages or when a commission becomes earned or payable.)
- Unpaid or Reduced Commissions (Failure to honor agreed commission terms.)
- Territory Overlaps or Reassignments (Encroachment issues violating exclusivity.)
- Termination (Unclear termination clauses leading to disputes.)
Key Components of Sub-Rep Contracts
- Parties (ID who is agreeing to the terms.)
- Duration (The length of time the agreement will stay in existence.)
- Exclusivity (Commissions earned on all sales or only those sales procured.)
- Commission Structure and Payment (Rates, timelines, and performance triggers.)
- Roles and Responsibilities (Defined duties for each party to avoid disputes.)
- Territory and Customer Assignments (Specify geographic and account authority.)
- Termination and Renewal (Notice periods, grounds for termination, and renewal options.)
- Confidentiality and Non-Compete (Protect sensitive client and business information.)
- Amendment (How the contract can be modified.)
- Dispute Resolution (Mediation, Arbitration and Pre-lawsuit negotiation requirements.)
Legal Protections for Sub-Rep Contracts
Federal Protections include:
- Uniform Commercial Code (UCC) (Contract enforcement standards.)
- Federal Trade Commission (FTC) (Fair business practices and protection.)
State Protections Include*:
- California Sales Commission Protection Statutes (mandatory triple damages)
- New York Labor Laws Protecting Sales Commission (mandatory double damages)
- New Jersey Sales Commission Protection Statutes (mandatory quadruple damages)
- Illinois Sales Commission Protection Statutes (up to triple damages)
* 35 States have laws that protect sales reps to one extent or another. These States cited for example only.
Statutory Remedies Include:
- Commission Recovery for Breach of Contract (Under straight breach of contract remedies.)
- Statutory Penalties for Unpaid Commissions (Double, triple or quadruple damages depending on the State law that is applied.)
- Attorney Fee Recovery (Where allowed by law.)
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Steps to Take If Facing Sub-Rep Agreement Disputes
Step 1: Survey Applicable Provisions:
- Look for termination clauses and commission payment terms.
- Highlight these provisions for discussion with an attorney who understands sub-rep Contracts and laws that protect sales reps.
Step 2: Gather Documentation
- Emails are important to set the context of the dispute.
- PO’s, shipment records, invoices, and payment records establish a case.
- Spreadsheets should then be prepared to document damages.
Step 3: Meet with an Attorney
- Review your contract with them.
- Get their opinions on viable causes of action (claims).
- Plan a strategy to avoid a lawsuit.
Step 4: Send a Demand Letter Including
- Identification of the Parties (Clarify sender and recipient.)
- Statement of Facts (Summarize the facts behind the fee dispute or violation.)
- Statement of Law (Give legal citations supporting the claims.)
- Specifying the Demands (Outline what must be paid, or what actions taken.)
- A Deadline for Resolution (Provide a specific deadline for a response.)
- Notice of Legal Action (Warn of a lawsuit if demands aren’t met.)
Step 5: File a Lawsuit Against the Agency (if negotiations fail.)
How a Contract Attorney Can Help with Sub-Rep Contracts
Contract Attorneys can assist with
- Negotiating and Drafting New Contracts (Custom contracts to fit specific sales relationships.)
- Reviewing Existing Contracts (Identify risks, gaps, and unfair terms.)
- Enforcing Contract Terms (Through demand letters and negotiation.)
- Negotiating Amendments and Settlements (Resolve disputes through new contract terms.)
- Litigating Breach of Contract Claims (Pursue damages for unpaid commissions and other violations.)
FAQs About Sub-Rep Contracts
A sub-rep contract is a written contract between a sales Agency and an independent sales rep who provides services to the Agency.
Terms that should be drafted in a sub-rep contract include: Parties, Duration, Exclusivity, Commission Structure, Payment Requirements, Responsibilities, Territory and Customer Assignments, Termination, Renewal, Amendment rights and Dispute Resolution.
Commissions can be recovered if a sub-rep contract is breached. Punitive damages along with attorney fees are also recoverable, depending on the State laws applied.
Commissions can best be protected in a sub-rep contract through specific, protective contract language.
Recovery of sales commissions due. Double, triple or even quadruple the commissions due, and attorney fees, depending on the State laws applied.
Related Topics
- Split Commissions and Payment Disputes (Link to split commissions page.)
- Unpaid Commissions (Link to unpaid commissions page.)
- Demand Letters for Contract Enforcement (Link to demand letters page.)
- Statutory Violations and Commission Protections (Link to statutory violations page.)
Conclusion: Protect Your Interests with Strong Sub-Rep Contracts
- It is much better (and less costly) to hire an attorney to draft clear and enforceable sub- rep contracts, instead of litigating disputes.
- Whether you need help negotiating and drafting a new sub-rep contract or enforcing an existing one, contact our attorneys today for a free consultation.