What Is a Demand Letter and When Do You Need One?
What Is a Demand Letter and When Do You Need One?
What is it?
A demand letter is a formal letter from an attorney that demands certain actions by whomever it is written to.
When is it needed?
A demand letter is needed when a sales rep is seeking to resolve commission disputes, wrongful terminations and other contract violations.
Why are Demand Letters important?
Demand letters are important because (except for rare circumstances) nobody wants to jump into pursuing litigation before they have tried to reach a settlement informally. Demand letters jump start that process.
If you need to recover hard earned unpaid commissions or to enforce a contract provision your Principal may be violating.
Contact us today and we will draft and send a demand letter for you
SCETM
The Sales Commission Enforcers
Find Out How Much Your Case Is Worth
Over 90% of our cases settle without prolonged litigation.
Common Reasons Sales Reps Use Demand Letters
Recover Unpaid Commissions (Disputes over compensation owed.)
Do not allow a Principal to withhold or delay your rightfully earned commissions. Justice delayed can become justice denied. And some State laws penalize Principals if they don’t pay earned commissions within a certain number of days!
Rectify other Breaches of Contract (Failure to honor terms in agreements.)
Sometimes Principals pay commissions but breach less important provisions in a contract, such as failing to account for sales upon which commissions are being paid. If you don’t challenge those violations quickly, you may lose your right to do so.
Reverse Termination Violations (Wrongful termination or lack of notice.)
Termination violations can be rectified when a demand letter points out wrongful conduct by the Principal, such as failing to give the required number of days before terminating, or failing to recognize post-termination commission requirements.
Adjust Commission Reductions or Splits (Unfair payment adjustments.)
When Principals arbitrarily adjust payable commissions under reduced or split commission provisions, the sales rep must call them out on this conduct or lose a portion of their commissions.
Address Statutory Violations (Failure to comply with laws protecting commissions.)
Statutory violations can occur when a Principal fails to provide a written contract to a sales rep, when a Principal fails to account for sales upon which commissions are being paid, or when they don’t pay the commission on time.
Good demand letters can address these violations to gain leverage over the Principal by citing the penalty provisions in statutes requiring these actions.
Key Elements of a Demand Letter
- Identification of the Parties (Clarify sender and recipient.)
- Statement of Facts (Summarize the dispute or violation.)
- Statement of Law (Give legal citations supporting the claims.)
- Specifying the Demands (Outlining what must be paid, or what actions must be taken.)
- Deadline for Resolution (Provide a specific timeline for response.)
- Notice of Legal Action (Warn of lawsuits or other legal action if demands aren’t met.)
Steps to Take Before Sending a Demand Letter
Step 1: Review Your Contract or Agreement
Look for termination clauses, commission payment terms, and other provisions that may be relevant. Watch out for venue (location of the lawsuit) requirements, choice of law provisions (which state’s law will apply to the dispute) and possible alternative dispute resolution provisions (did the parties agree to submit the matter to either mediation or arbitration instead of being able to sue in court).
Highlight these provisions for discussion with an attorney who understands independent sales rep contracts, and laws that protect sales reps.
Note that even if a contract allows only 30 day notice to terminate, with no strings attached on commission payments, a sales rep may still have the right to commissions on post-termination sales for which they were responsible.
Step 2: Gather Evidence
Locate contracts (even drafts prior to finalizing), payment records, and correspondence with both your Principal and the customers involved. Customers are not required to provide documentation of purchases unless a lawsuit is filed and a subpoena issued. But they can usually be made to comply with that threat in mind.
It may be best to seek help from customers informally, off the record that is. Meaning get information over the phone or in person without anything in writing. That way the customer doesn’t have to give the appearance they are going against the Principal from whom they are still purchasing products in most cases.
Step 3: Consult an Attorney
But do not consult just any attorney. Find one that is fluent in the law pertaining to independent sales reps. At the SCE we have a combined 70 years of experience assisting sales reps in settling or litigating their commission disputes.
The Manufacturers’ Agents National Association (MANA) has a list of sales rep experienced attorneys who can be consulted.
The National Association of Sales Professionals (NASP) and the Independent Sales Representatives Association (ISRA) may also have referrals to experienced counsel.
Step 4: Draft the Demand Letter
Drafting the demand letter is a co-effort between client and attorney, at least in our firm. We start by working with the client to understand the essential facts and law, and then exchange drafts with our client so they can have input where needed.
Step 5: Send the Letter
Start by checking your contract to see if there is a particular method of delivery required for legal notices under the contract. If so, follow that method.
If nothing is specified in the contract, we start by sending the demand letter via email. If we don’t receive a response, we may resort to sending the letter by certified mail. If a certified mail is not accepted, we ultimately use process servers to hand deliver the document.
How a Contract Attorney Can Help with Demand Letters
- Formulating a Strategy on how to Approach the Dispute.
- Evaluating Contract Terms and Potential Claims.
- Drafting a Clear and Effective Demand Letter Tailored to the Dispute.
- Negotiating Settlements after Demand Letter is Sent, including via Mediation.
- Litigating Claims if Demands are Ignored by Filing Lawsuits to Recover Commissions.
- Utilizing Rights Under State and Federal Laws as Leverage to Force Settlement.
FAQs About Demand Letters for Sales Representatives
A demand letter is a formal letter from an attorney demanding certain actions. A demand letter should be sent after informal efforts (conversations or email between you and the principal) have failed to resolve the dispute.
If a recipient ignores a demand letter, we follow up with a “drop dead” letter, which is a letter giving them an ultimatum of responding and rectifying the dispute by a certain date or facing a lawsuit.
A demand letter can start the process of recovering unpaid commissions; but follow-up negotiations are usually needed.
Claims for unpaid commissions, violation of state law, and other breaches of contract can be included in a demand letter.
As long as you want to give them. Since commission disputes can take a little time to investigate, we usually give 14 days to respond.
Enforce Your Rights with a Professionally Drafted Demand Letter
- Demand letters are a cost-effective first step to resolving contract disputes. In approximately 35% of our cases, we are able to settle the dispute through a demand letter and follow-up correspondence and conferences.
- If you need to send a demand letter to recover commissions, enforce contracts, or resolve other disputes, contact our attorneys today for a free consultation.