House Accounts
What Are House Accounts?
Definition
- House accounts are usually larger or national accounts reserved and serviced directly by a company (the Principal) bypassing commissioned sales reps to avoid payment of large commissions.
Why It Matters to Sales Reps
- The taking of House accounts often leads to commission disputes, contract violations, and territory conflicts; because Principals usually wait while the sales rep develops that House account under their Sales Representation Agreement (SRA) and then when it becomes profitable exclude it from the commission structure.
- The parties’ contract will indicate whether this is lawful or not.
- House account disputes for sales reps can be avoided by protective contract language. Sales reps should be compensated with a liquidated amount if the Principal desires to take an otherwise commissionable account in-house.
Common Legal Issues with House Accounts
Reclassification of Accounts
- Principals reclassify accounts as House accounts and reassign them to in-house employees.
Commission Denial
- Reclassification of accounts results in withholding of commissions for sales reps who developed or closed deals with those accounts.
Territory Violations
- Encroachment on exclusive territories protected under contract. But the SRA must be consulted to see if there are exceptions to exclusivity by allowing House accounts.
Unpaid Commissions After Termination
- Companies terminate contracts to reassign accounts as House accounts, avoiding commission payments.
- This is only legal if the contract allows it. Otherwise it’s a bad faith termination for which damages can be recovered in the form of lost commissions.
Legal Protections for Sales Representatives Facing House Account Disputes
Contract Enforcement
- Sales representatives may be protected under their SRAs. Check the agreement for allowance of House accounts.
Statutory Protections
- 35 states have provisions protecting independent sales rep’s commissions. If House accounts are wrongfully taken it will trigger punitive damage provisions in many states. New Jersey’s Sales Commission Protection Act requires Courts to award triple the contract damages owed in case of such violations.
Federal Laws
- The Fair Labor Standards Act (FLSA) also grants contract enforcement rights.
Steps to Take If You’re Denied Commissions Due to House Accounts
Step 1: Review Your Contract Terms
- Focus on clauses related to exclusive territories, commissions, House accounts and termination.
Step 2: Document All Transactions
- Maintain proof of client communications, sales contributions, and agreements. Provide a spreadsheet on damages based on this info.
Step 3: Meet with an Attorney
- Find an attorney knowledgeable regarding the law on independent sales reps.
Step 4: Send a Demand Letter
- Work with the attorney to demand unpaid commissions or contract enforcement.
Step 5: Seek to Negotiate a Settlement
- It is quicker and more cost-effective to seek a remedy out-of-court if possible.
Step 6: Consider Legal Action
- If negotiations fail, explore litigation options for commission recovery, and potential punitive damages and recovery of attorney fees for breach of contract.
How a Sales Rep Attorney Can Help with House Account Disputes
Contract Reviews
- To analyze SRAs for House account provisions and territory protections.
Demand Letters and Negotiations
- To recover unpaid commissions without litigation.
Filing Lawsuits
- To enforce contract terms and recover damages.
Territory Disputes
- To defend sales reps against encroachments or territory reassignments.
- If you’ve lost commissions due to House accounts (or even better, before you do). Contact our sales rep attorneys for a free consultation to fight for your rights.
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Case Studies
An Example
In 2021 we had a client who had a large national pharmacy chain taken as a House account. The client developed this account which was not previously a customer of their Principal. The contract did not allow the Principal to take the account as a House account on the short notice they gave; but they did it anyway. We recovered approximately $210,000.00, representing one year of lost commissions.
- This was achieved based on the leverage of California’s triple damage statute.
MANA viewpoint on House accounts
The Manufacturers’ Agents National Association (MANA) disapproves of taking previously commissionable accounts as House accounts.
FAQs About House Accounts and Commission Disputes
A House account means any previously commissionable account reclassified by a Principal to make it non-commissionable.
It all depends on the provisions of the SRA. If there are no provisions for House accounts, it is a breach of contract.
35 States have statutes that protect sales reps’ commissions. It depends on which state’s laws are applied. Consult the SRA or an attorney.
Attorneys knowledgeable in the law regarding sales reps have a lot of leverage to recover unpaid commissions based on punitive damage statutes found in State laws.
Related Topics and Internal Links
Protect Your Commissions from House Account Disputes
- Sales reps have strong rights to commissions and contract enforcement with leverage under threatening punitive damage statutes from various States.
- However, quick action must be taken to recover losses and secure legal protections.
- If you’re dealing with a House account dispute, contact our experienced sales rep attorneys today for a free consultation.”