Reduced Commissions - How We Can Help
Introduction: What Are Reduced Commissions?
Definition
- Reduced commissions are situations where a sales rep’s agreed-upon commission rates – as stated in a Sales Rep Agreement (SRA) – are lowered, without proper notice or otherwise in violation of contract terms.
Why It Matters
- When a sales rep accepts a reduced commission, the Principal thinks they are able to pay commissions at a lower rate than the contract requires. If that happens repeatedly, it creates “course of dealing,” that a Court would conclude signifies the parties agreed to a modification of the original commission rate by their conduct.
- It can also be looked at as a “waiver” (agreed upon loss) of the sales rep’s rights to the full commission percentage. This can have a huge impact on independent sales reps who depend on commissions as their primary source of income.
Common Causes of Disputes over Reduced Commissions
Contract Changes or Breaches
- Unilateral changes to commission rates by the Principal without first receiving the sales rep’s agreement, and without amending contracts. Most SRAs require that any modifications be agreed to in writing, by both sides.
Account Reclassification as House Accounts
- Reclassifying customers as House accounts to avoid paying commissions.
Split Commissions Disputes
- Reductions due to commission splitting based on shared sales efforts or territory overlaps.
Termination Before Payment
- Companies firing reps to avoid payouts for pending commissions on deals in the works.
Statutory Violations
- Violations of state sales rep protection laws regarding commission payments.
Legal Protections for Independent Sales Representatives Facing Reduced Commissions
Contract Enforcement
- Rights under Sales Representation Agreements (SRAs) and other commission contracts may not just be disregarded by the Principal.
Statutory Protections
- State-specific protections under laws like the California Sales Representative Act or similar statutes in other states, support sales reps and their right to their contractual commissions.
Federal Laws
- Protections for sales reps also exist under the Fair Labor Standards Act (FLSA) which generally prohibits unfair business practices and the Uniform Commercial Code (UCC) which among other protections establishes contracts between distributors and their principals based on something as simple as an email chain.
Steps to Take If Your Commissions Were Reduced or Unpaid
Step 1: Review Your Contract Terms
- Focus on clauses related to commissions, modifications, breaches and termination.
Step 2: Document All Transactions
- Maintain proof of customer communications, sales contributions, agreements to pay commissions and payment of reduced commissions. Prepare 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 and give them a concise chronology based background.
Step 4: Send a Demand Letter
- Work with the attorney to demand unpaid commissions or contract enforcement, by sending the Principal a Demand Letter.
Step 5: Seek to Negotiate a Settlement
- It is quicker and more cost-effective to seek a remedy out-of-court if possible. Let the attorney do the bidding.
Step 6: Consider Legal Action
- If negotiations fail, explore litigation options for commission recovery, potential punitive damages (under various State Laws) and recovery of attorney fees.
How a Sales Rep Attorney Can Help with Reduced Commission Claims
Contract Review and Negotiation
- Evaluate contracts for loopholes or violations.
Demand Letters and Settlements
- Recover commissions through negotiations without going to Court.
Litigation for Commission Recovery
- File lawsuits for breach of contract or violations of statutory protections.
Protecting Territories and Account Rights
- Defend against House account reclassifications or territory violations.
Facing a commission cut? Don’t let your hard-earned income slip away. You have enforceable rights.
Contact our sales rep attorneys today for a free consultation.
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FAQs About Reduced Commissions for Sales Representatives
An Employer or Principal can only reduce a commission rate if the sales rep agrees to it, or if the SRA allows it under certain conditions.
Even if a commission agreement was verbal, the sales rep can still sue for unpaid commissions, along with potential statutory damages for more than just the commissions owed.
The legal protections possessed by independent sales reps are many: most importantly the provisions in the contract; but also the doctrines of bad faith and procuring cause.
A sales rep can recover commissions even if they were terminated before payment by the customer. It depends on the provisions in the contract as well as the background of the dispute.
The length of time in which a sales rep must file a claim for reduced or unpaid commissions varies from State to State. Generally, however, breach of a written contract has a four-year statute of limitations; while breach of an oral contract has a one or two year statute of limitations.
Protect Your Right to Contract Commissions
- Sales reps have many legal protections to recover reduced commissions. From statutory protections where the offending company may be liable for 2 times, 3 times or even 4 times what’s owed, to historic legal doctrines such as bad faith and procuring cause.
- However, a sales rep must take quick action to enforce their SRAs. Otherwise, continued acceptance of less than what’s owed may result in a Court finding that there has been a new contract created at the lower commission rate, based on the parties’ conduct.
- We have over 70 years combined experience in analyzing these issues and assisting sales reps in recovering their rightful commissions. If your commissions have been reduced unfairly, or unpaid, contact our experienced sales rep attorneys today for a free consultation.