Statutory Violations
Introduction: Statutory Violations against Sales Representatives
- 35 States in the U.S. have enacted statutes to protect independent sales reps and their sales commissions.
- Common violations of these laws include failure to pay commissions, failure to pay commissions on time, wrongful terminations to avoid payment of commissions, failure to provide a written SRA, and failure to properly account for sales & commissions paid.
- Misclassification as a 1099 contractor or W-2 employee is another legal problem resulting in violations of statutes by Employers and Principals.
- Our team of attorneys have 70 years combined experience recovering penalties and attorney fees under State and Federal laws that protect sales reps.
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Statutory Violations Resulting in Penalties for Employers and Principals
Unpaid Commissions
- Unpaid commissions can result from a variety of misconduct. From simple failure to abide by Sales Representation Agreement (SRA) terms, to the wrongful taking of House accounts, to bad faith termination to avoid payment of commissions, and other devious conduct.
Retaliation and Wrongful Termination
- Retaliation can occur when sales reps stand up for the right to be paid their commissions. If an Employer or Principal pulls a termination after a sales rep demands their rightful commissions, it may be looked at as a bad faith termination.
- Courts will often require the payment of commissions as if the termination had never occurred, under such circumstances.
Account Reclassification (House Accounts)
- Account reclassification occurs when a formerly commissionable customer becomes non-commissionable at the behest of the Employer or Principal. This may sometimes be allowed by the SRA , after a given period of notice. However, many times it is a simple breach of contract.
Reduced or Split Commissions
- Reduced or split commissions can also result in breaches of an SRA that are against State law.
- Reduced commissions. Sometimes, Employers or Principals seek to reduce a commission percentage owed to a sales rep based upon price concessions they may give to a customer. Unless the sales rep agrees to the reduction before the sale is consummated, that action is probably illegal.
- Split commissions. Sometimes, Employers or Principals arbitrarily decide that a commission on a sale should be split between 2 or more sales reps. If this is not allowed by the SRA, it is a breach of contract and a potential violation of State Law.
Territory Violations
- Territory violations can occur when a sales rep with an exclusive territory has other sales reps competing for sales in that so-called exclusive territory. It is irrelevant who makes the sale. If a sales rep has an exclusive territory, as stated in their SRA, they are entitled to commissions on all sales in the territory, no matter who makes them.
Legal Protections Against Statutory Violations
State Laws (a sampling of some of the 35 States that have laws protecting sales reps).
The laws of all 35 States with sales commission protection statutes can be found on the website of MANA – the Manufacturer’s Agents National Association.
- The Arizona Sales Commission Protection Act
Requires Courts to award 3 times the contract damages proven by a sales rep, and the sales rep’s reasonable attorney fees, if they win the case.
Also allows claims by sales reps for commissions on sales even after termination if they can prove that the termination was done to avoid the payment of those commissions (a codified claim for bad faith termination).
- The California Sales Commission Protection Act
Requires Courts to award 3 times the contract damages proven by a sales rep when Principals don’t pay commissions according to the terms of the SRA. It also requires an award of the sales rep’s reasonable attorney fees if they win the case.
- The Connecticut Sales Commission Protection Act
Requires Courts to award 2 times the contract damages proven by a sales rep when Principals don’t pay sales commissions within 30 days of termination or within 30 days of their due date, after termination. Also requires an award of the sales rep’s reasonable attorney fees if they win the case.
- The Georgia Sales Commission Protection Act
Allows Courts to award up to 2 times the contract damages proven by a sales rep when Principals don’t pay sales commissions within 30 days of termination. Also requires an award of the sales rep’s reasonable attorney fees if they win the case.
- The Illinois Sales Commission Protection Act
Allows Courts to award up to 3 times the contract damages proven by a sales rep. Also requires an award of the sales reps reasonable attorney fees, if they win.
- The Maryland Sales Commission Protection Act
Allows Courts to award up to 3 times the contract damages proven by a sales rep when Principals don’t pay sales commissions within 45 days of their due date after a termination; and requires an award of the sales reps reasonable attorney fees if they win.
Also allows claims by sales reps for commissions on sales even after termination if they can prove that the termination was done to avoid the payment of those commissions (another codified claim for bad faith termination).
- The Massachusetts Sales Commission Protection Act
Allows Courts to award up to 3 times the contract damages proven by a sales rep when Principals don’t pay sales commissions within 14 days after termination or within 14 days of their due date after termination. Also requires an award of the sales reps reasonable attorney fees if they win.
- The New Jersey Sales Commission Protection Act
Requires Courts to award 4 times the contract damages proven by a sales rep when Principal failed to pay commissions due within 30 days of termination, or within 30 days of their due date after termination. It also requires an award of the sales rep’s reasonable attorney fees if they win the case.
- New York Sales Commission Protection Act
Requires Courts to award 2 times the contract damages proven by a sales rep when Principals don’t pay sales commissions within 5 days of termination or within 5 days of their due date, after termination. Also requires an award of the sales rep’s reasonable attorney fees if they win the case.
- The North Carolina Sales Commission Protection Act
Allows Courts to award up to 3 times the contract damages proven by a sales rep when Principals don’t pay sales commissions within 30 days of termination or within 15 days of their due date after termination. Also requires an award of the sales reps reasonable attorney fees, if they win.
Also allows claims by sales reps for commissions on sales even after termination if they can prove that the termination was done to avoid the payment of those commissions (another codified claim for bad faith termination).
- The Ohio Sales Commission Protection Act
Allows Courts to award up to 3 times the contract damages proven by a sales rep when Principals don’t pay sales commissions within 30 days of termination or within 13 days of their due date after termination. Also requires an award of the sales reps reasonable attorney fees if they win.
- The Pennsylvania Sales Commission Protection Act
Allows Courts to award up to an additional 2 times the contract damages proven by a sales rep when Principals don’t pay sales commissions within 14 days of termination or within 14 days of their due date after termination. Also requires an award of the sales reps reasonable attorney fees, if they win.
- The Texas Sales Commission Protection Act
Requires Courts to award 3 times the contract damages proven by a sales rep operating in Texas when Principals with non-compliant SRAs (under these laws) don’t pay sales commissions within 30 days of termination. Also requires an award of the sales reps reasonable attorney fees if they win.
Steps to Take If Your Statutory Rights Were Violated
Step 1: Review Your SRA Terms & the State Laws at Issue
- Focus on SRA clauses and statutory provisions related to commissions, breaches and termination.
Step 2: Document All Transactions
- Maintain proof of customer communications, sales contributions, agreements to pay commissions and failure to pay commissions, or late payment of 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 SRA enforcement, by sending the Principal a Demand Letter. The Demand Letter should use the threat of the statutory damages as leverage.
Step 5: Seek to Negotiate a Settlement
- A remedy out-of-court is usually best. Do remember, however, that sales reps typically have a lot of leverage because of the punitive damage provisions in most sales rep protection statutes. Don’t settle cheap!
Step 6: Consider Legal Action
- If negotiations fail, explore litigation options for commission recovery, potential punitive damages (under State Laws) and recovery of attorney fees.
How a Sales Rep Attorneys Can Help
- Evaluate SRAs (To identify statutory violations and resulting punitive damages.)
- Send Demand Letters (Pre-litigation communications can often resolve disputes.)
- Recover Unpaid Commissions (Negotiations using leverage help avoid lawsuits.)
- Enforce Territory Rights (To protect against account reclassification and loss.)
- File Claims for Statutory Violations (Including for statutory penalties & attorney fees.)
FAQs About Statutory Violations
Statutory violations, depending on the State law, include failure to provide a written SRA, failure to account for commissions owed, failure to pay commissions owed, failure to pay commissions owed on time, and wrongful terminations to avoid the payment of commissions.
35 states have Sales Commission Protection Acts which offer remedies for sales reps.
Commissions can be recovered by 1099 independent contractors.
Penalties which can be recovered include basic contract damages, punitive damages, and recovery of attorney fees.
The length of time in which a sales rep must file a claim for unpaid commissions (statutes of limitation) varies from State to State; but generally 4 years from the date of discovery of breach of a written contract, and 1 or 2 years from the date of discovery of a breach of an oral contract.
Statutes of limitation can require a sophisticated analysis. Be sure to consult an attorney that has knowledge of the law pertaining to independent sales reps.
Defend Your Rights Against Statutory Violations
- If your SRA is breached, do not delay! It is critical to contact an attorney with knowledge of this area of law to quickly ascertain the statutory leverage you may possess to enforce rights under State and Federal laws.
- Contact our experienced attorneys today for a free consultation about statutory violations and commission disputes. We have over 70 years of combined experience. We know which buttons to push!