Frequently Asked Questions (FAQs) About Minnesota Sales Representatives Law
What is the Minnesota Termination of Sales Representatives Act?
The Minnesota Legislature has adopted the Minnesota Termination of Sales Representatives Act, Minn. Stat. § 325E.37 (the "Act"), which provides special legal rights to many independent contractor sales representatives who reside in, or whose sales territory includes, the State of Minnesota.
Who is Covered by the Act?
Under the Act, a "sales representative" means someone who contracts with a principal to solicit wholesale orders and who is compensated, in whole or in part, by commission. A covered sales rep can be a natural person, but also includes a partnership, corporation, and all other legal entities.
However, sales representative does not include a person who: (1) is an employee of the principal; (2) places orders or purchases for the person's own account for resale; (3) holds the goods on a consignment basis for the principal's account for resale; or (4) distributes, sells, or offers the goods, other than samples, to end users, not for resale.
A salesperson may not fall under the Act for several reasons. As listed above, if an individual is an employee (rather than an independent contractor) of the principal the Act does not apply. Additionally, if the sales rep solicits orders for sale to the general public (rather than for resale) he or she is not covered by the Act.
Do Salespersons Who Are Not Covered by the Act Have any Legal Protection?
Yes. Salespersons who are not covered by the Minnesota Termination of Sales Representatives Act might still have claims for breach of contract, unpaid commissions, and penalties under other Minnesota statutes. For example:
- Sales employees who are not covered by the Act because they are not independent contractors may be covered by Minn. Stat. § 181.13 or Minn. Stat. § 181.14, which allow employees to recover unpaid wages (including commissions) upon written demand following termination of the employment relationship if the wages are not paid within certain statutory time periods (which vary based on the circumstances);
- Commissioned salespersons who are independent contractors but do not fall under the above two statutes or the Act for some reason may also be entitled to unpaid commissions and statutory penalties under Minn. Stat. § 181.145, which is similar to the two statutes noted above but regulates independent contractors (rather than employees).
This website focuses solely on the independent contractor sales representative in the State of Minnesota who falls under the Act. However, if you do not fall under the Act for some reason, you may visit www.MinnesotaUnpaidWagesLaw.com, a website devoted to recovering unpaid wages under Minnesota law.
What Types of Sales Rep Agreements Are Covered by the Act?
The Act applies to a "sales representative agreement", which is defined as a contract or agreement, either express or implied, whether oral or written, for a definite or indefinite period, between a sales representative and another person or persons, whereby a sales representative is granted the right to represent, sell, or offer for sale a manufacturer's, wholesaler's, assembler's, or importer's goods by use of the latter's trade name, trademark, service mark, logotype, advertising, or other commercial symbol or related characteristics, and in which there exists a community of interest between the parties in the marketing of the goods at wholesale, by lease, agreement, or otherwise. "Wholesale orders" means the solicitation of orders for goods by persons in the distribution chain for ultimate sale at retail.
Does the Act Apply to Verbal or "Handshake" Sales Rep Agreements?
Yes. As you can see from the above definition, the Act applies to a wide variety of sales representative agreements in whatever form . . . not just written agreements. Thus, the statute covers both express and implied contracts, oral and written contracts, and contracts with no fixed duration.
Does the Act Limit When a Sales Rep Agreement Can Be Terminated?
Yes. The most significant provision of the Act generally prohibits the principal from terminating a sales representative agreement without "good cause", and then only after providing a 90-day advance notice period and a 60-day cure period. The definition of "good cause" is discussed below.
After receiving the notice, the sales representative has 60 days to cure the problems specified in the notice. If the problems are not fixed during this time, the principal can move forward with the termination on the 90th day. If the problems are fixed, then the sales rep cannot be terminated.
In a few serious cases, the principal may terminate the sales representative agreement immediately without providing the 60-day cure period. This topic should be discussed with legal counsel.
Does the Act Override the Terms of the Sales Rep Agreement Itself?
Yes. The Act's statutory provision limiting the right of a principal to terminate a sales representative overrides any contrary provision in the sales representative agreement. Thus, a sales representative may have a valid claim for unlawful termination under the Act even where the agreement itself would otherwise allow termination under its own terms.
The Act provides a trap for the unwary principal, manufacturer, wholesaler, or importer that engages a Minnesota sales rep without being familiar with the Act. Even if the principal terminates the sales rep in accordance with the negotiated terms of the sales rep agreement, liability could arise.
What is "Good Cause" Under the Act?
Under the Act, "good cause" means a material breach of one or more provisions of a written sales representative agreement, or in absence of a written agreement, failure by the sales representative to substantially comply with the material and reasonable requirements imposed by the manufacturer, wholesaler, assembler, or importer.
Good cause includes, but is not limited to:
- the bankruptcy or insolvency of the sales representative;
- assignment for the benefit of creditors or similar disposition of the assets of the sales representative's business;
- the voluntary abandonment of the business by the sales representative as determined by a totality of the circumstances;
- conviction or a plea of guilty or no contest to a charge of violating any law relating to the sales representative's business;
- any act of the sales representative which materially impairs the good will associated with the manufacturer's, wholesaler's, assembler's, or importer's trademark, trade name, service mark, logotype, or other commercial symbol; or
- failure to forward customer payments to the manufacturer, wholesaler, assembler, or importer.
If the principal can demonstrate one of the six examples of "good cause" contained in the statute, then the 90-day notice period and 60-day cure period do not apply and the agreement can be terminated immediately. In all other cases (e.g., breach of the sales rep agreement), these periods apply.
What if the Sales Rep Agreement Allows Termination "At Will"?
The Minnesota Termination of Sales Representatives Act overrides any contrary provision of the sales rep agreement. Therefore, even if the agreement itself states that the principal can terminate the sales rep for any reason ("at will"), or authorizes termination on less than 90 days notice, or does not grant a "cure period" to the sales rep, the principal may be violating Minnesota law by enforcing these contractual provisions.
Does the Act Regulate the Non-Renewal of Agreements?
Yes. In addition to limiting the termination of sales representatives, the Act provides that unless the failure to renew a sales representative agreement is for "good cause" (as defined above), and the sales representative has failed to correct the reasons for termination within the 60-day cure period, the principal may not fail to renew a sales representative agreement unless the sales representative has been given written notice of the intention not to renew at least 90 days in advance of the expiration of the agreement.
As a practical matter, this means that the principal must give 90 days' notice of non-renewal regardless of whether the contract permits a shorter notice.
How Does Non-Renewal Work if the Agreement is Silent About Duration?
In some cases, a sales representative agreement will be silent about its duration or expiration date. This occurs most often when there is only a "verbal" or "handshake" deal. In these cases, the Act provides that a sales representative agreement of indefinite duration shall be treated as if it were for a definite duration expiring 180 days after the giving of written notice of intention not to continue the agreement.
In practical terms, this means that a verbal, handshake, or even written sales rep agreement that does not specify a duration can only be terminated in one of two ways:
- First, if the principal has "good cause," the principal can give the adequate advance notice of termination (which typically is 90 days coupled with a 60-day cure period); or
- Second, the principal could opt not to renew the agreement 180 days following the notice of non-renewal even without "good cause".
As you can see, it is much harder for a principal to terminate a sales rep agreement that does not include a designated duration. This is because the advance notice period for non-renewal jumps from 90 days to 180 days.
What Commissions Must Be Paid Following Termination?
The Act provides that, upon termination of the sales rep agreement, the representative is entitled to all commissions, at the contract rate and terms, for sales made prior to the date of termination or the end of the statutory notice period, whichever is later, regardless of whether the goods have actually been shipped. Often, the sales rep agreement will state something to the effect that no commissions will be paid for sales when the goods have not been shipped, invoiced, or paid for prior to the termination date (or within a certain number of days thereafter). This can set the principal up for an inadvertent violation of Minnesota's statute.
Can The Sales Representative Demand Arbitration of Claims?
Yes. In addition to the "pro sales rep" provisions of the Minnesota Act discussed above, the Act states that the sales representative can demand arbitration of claims under the Act . . . even over the objection of the principal/manufacturer and even when the sales representative agreement itself does not contain an arbitration clause.
Are Choice of Law Provisions in the Sales Rep Agreement Enforceable?
Often sales representative agreements include a choice of law provision that selects the law of a state other than Minnesota to govern the agreement. For example, in a sales rep agreement drafted by a manufacturer headquartered in Connecticut, the manufacturer may specify that the agreement will be governed by Connecticut law.
As originally enacted, the Act was silent on whether choice of law provisions were enforceable in sales rep agreements covered by the Act and whether such provisions would eliminate the sales rep’s protections under the Act. Over the years, several Minnesota courts concluded that a choice of law provision in a sales rep agreement was enforceable provided that it was entered into in good faith and application of the laws of the state selected was not arbitrary or fundamentally unfair. In such cases, the sales rep would lose the protections of the Act.
In 2007, the Minnesota Legislature carved-out an exception to the validity of these choice of law provisions for sales rep agreements governing plumbing equipment or supplies. The Act provides that a provision in any contract between a sales representative dealing in plumbing equipment or supplies and a principal purporting to waive any provision of the Act, whether by express waiver or by a provision stipulating that the contract is subject to the laws of another state, is void.
The Minnesota Legislature went even further in 2014 to invalidate almost all choice of law provisions contained in sales rep agreements which select the laws of a state other than Minnesota, or otherwise purport to waive the sales rep’s protections under the Act. The Act now provides that no manufacturer, wholesaler, assembler, or importer shall circumvent compliance with the Act by including in a sales representative agreement a term or provision, whether express or implied, that includes or purports to include: (1) an application or choice of law of any other state; or (2) a waiver of any provision of the Act. According to the Act, such provisions are void and unenforceable. This amendment became effective August 1, 2014, and applies to sales representative agreements entered into, renewed, or amended on or after that date.
Therefore, based on the plain language of the amendment, a choice of law provision in a sales representative agreement that is entered into, renewed, or modified on or after August 1, 2014, will be deemed void and unenforceable. On the other hand, choice of law provisions contained in agreements that were entered into before August 1, 2014 are likely enforceable under pre-existing case law provided that such agreements have not been renewed or modified after that date.
In the coming years, manufacturers may challenge the constitutionality of the 2014 amendment under the Contracts Clause of the U.S. Constitution, especially as applied to sales rep agreements entered into prior to August 1, 2014 that were merely “renewed” thereafter pursuant to an evergreen clause or “auto-renewal” provision in the sales rep agreement. When the Act was originally enacted, at least one court found that it was unconstitutional under the Contracts Clause as applied to a sales rep agreement entered into prior to the effective date of the Act, but renewed thereafter. In the coming years, the Minnesota courts may examine whether the same logic makes the August 1, 2014 amendment unconstitutional as applied to contracts that are merely renewed following its effective date.
Are Venue Provisions in the Sales Rep Agreement Enforceable?
As discussed above, a choice of law provision selecting the law of another jurisdiction is void if the sales rep agreement was entered into, renewed, or modified on or after August 1, 2014. Nothing in the 2014 amendment, or the original Act, however, invalidates “choice of venue” provisions which are often found in many commercial contracts. A venue clause typically states that the parties agree to bring all legal disputes in a specified venue or jurisdiction. Whereas choice of law provisions dictate what state’s law will apply, venue provisions merely address where the parties’ must bring their legal dispute.
Minnesota courts generally enforce a venue provision unless the party seeking to avoid the contractual forum shows that the agreement is unfair and unreasonable because: (1) the chosen forum is a “seriously inconvenient” place for trial; (2) the agreement containing the venue provision is a contract of adhesion; or (3) the agreement is “otherwise unreasonable.” Generally, a venue is “seriously inconvenient” if, by litigating there, one party would be deprived of their meaningful day in court. Location and convenience of witnesses, however, are generally not considered a serious inconvenience. Therefore, venue provisions contained in Minnesota sales rep agreements will often be enforceable.
Tips for the Principal When Drafting a Sales Representative Agreement:
The principal should follow these tips when drafting a sales rep agreement with a Minnesota sales representative:
- Incorporate the specific notice and cure periods spelled out in Minnesota law. This will help avoid inadvertent violations of the statute.
- Define clearly what constitutes "good cause" to terminate the agreement. Remember, "good cause" includes the material breach of the agreement. Therefore, by carefully outlining the sales rep's duties, it will be easier to terminate the sales rep down the road.
- Include a fixed duration for the contract that automatically renews for successive one (1) year periods thereafter unless sooner terminated or not renewed upon 90 days' notice. By including a fixed ending date, it will be easier to take advantage of Minnesota's "non-renewal" option, which does not require proof of "good cause" to terminate provided that 90 days' notice of non-renewal is given. In some cases, it may be wise to set a contractual duration of six (6) months that automatically renews for successive six (6) month periods. By doing so, if the principal ever wants to end the contract, most likely an expiration date will be soon approaching and the principal can simply elect "non-renewal" rather than termination for "good cause."
- Make sure the contract automatically renews for successive periods (e.g., one (1) year or six (6) months as discussed above) following the initial term unless properly terminated or not renewed. This will avoid a situation where the contract expires but the parties continue operating under no written contract. The latter situation is disadvantageous to the principal for many reasons including great uncertainty over its rights and also because 180 days' notice of non-renewal is required if no duration has been agreed upon. By default, this is most likely what will happen once the contract expires.
- If the principal is incorporated, has its principal place of business, or otherwise has significant contacts in a state other than Minnesota, the principal may elect to include a "choice of law" clause selecting the law of another state to govern the sales rep agreement. (Of course, legal counsel should research if that state's law is actually advantageous.) Due to an amendment of the Minnesota Sales Representatives Act however, such a clause may be unenforceable. Effective August 1, 2014 the Act was amended to provide that any choice of law provisions that select the law of a state other than Minnesota will be void and unenforceable for an agreement entered into, renewed, or amended on or after August 1, 2014. In addition, even if the agreement does not fall within the scope of this amendment, the Act explicitly states that such a provision will not be enforceable for contracts governing plumbing equipment or supplies.
Tips for the Sales Representative:
In order to best protect its rights under Minnesota law, the sales representative should consider the following tips:
- Negotiate carefully over the terms of the sales rep agreement. Remember, the tougher the agreement, the easier it will be for the principal to terminate the agreement later on for "good cause" by arguing that the agreement has been materially breached.
- Make sure the agreement can only be terminated for "good cause" and then define good cause very carefully to include only serious offenses.
- If possible, delete any language allowing the principal to decide not to renew the agreement (a "non-renewal" clause). Instead, provide that the agreement can only be terminated for "good cause." Even though the Minnesota Act specifies a method of ending a sales rep agreement through non-renewal, you can always negotiate for something better.
- Make sure the agreement includes adequate notice and cure periods in the event of termination or non-renewal; these notice and cure periods should be at least as generous as the Minnesota statute if not longer.
- If you have received a notice of termination, immediately attempt to "cure" the problems identified by the principal.
- If you receive a notice of termination or non-renewal, consult with an attorney immediately. What you do in the next 60 days could determine whether you have a valid legal claim for wrongful termination.
Where Can I Get More Information?
This is just a brief overview of the Minnesota laws governing sales representatives. Each situation is unique and must be evaluated based on its own specific facts. Trepanier MacGillis Battina P.A. offers a two (2) hour Initial Sales Rep Legal Consultation for the flat fee of $500. During this consultation, the firm can review your individual case and assess your legal rights. Click here to review the Terms and Conditions of our Initial Legal Consultation Policy.
© 2009 - 2013 Trepanier MacGillis Battina P.A.
Minnesota sales representative lawyer Craig W. Trepanier of the Trepanier MacGillis Battina P.A. law firm in Minneapolis, Minnesota represents clients in Minneapolis, St. Paul, Apple Valley, Blaine, Bloomington, Brainerd, Brooklyn Park, Burnsville, Coon Rapids, Duluth, Eagan, Eden Prairie, Edina, Lakeville, Mankato, Maple Grove, Minnetonka, Moorhead, Plymouth, Richfield, Rochester, St. Cloud, Stillwater, Twin Cities, Woodbury and other cities within the State of Minnesota (MN) (Minn.).