Termination of Independent Contractor Sales Representatives

If you are considering ending a sales representative’s agreement in Minnesota, one of the first issues to examine should be the statutory protections of Minn. Stat. § 325E.37. Appearing in the “Trade Practices” portion of Minnesota Statutes, the statute sets forth certain prerequisites for terminating an independent contractor sales representative.

First, the statute defines a sales representative as: “a person who contracts with a principal to solicit wholesale orders and who is compensated, in whole or in part, by commission.” But, the statute clarifies that the definition excludes anyone 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.” The statute further defines the types of contracts governed as: “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.”

Second, the statute describes the process for terminating a sales representative’s agreement during the course of the contract, and the process for declining to renew a sales representative’s agreement. Both circumstances require the terminating party to provide the sales representative 90 days advance notice and the right to “cure” the reasons for termination, unless the termination is for “good cause.” Good cause is defined as: “a material breach of one or more provisions of a written sales representative agreement governing the relationship with the manufacturer, wholesaler, assembler, or importer, 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 also includes:

  1. the bankruptcy or insolvency of the sales representative;
  2. assignment for the benefit of creditors or similar disposition of the assets of the sales representative’s business;
  3. the voluntary abandonment of the business by the sales representative as determined by a totality of the circumstances;
  4. conviction or a plea of guilty or no contest to a charge of violating any law relating to the sales representative’s business;
  5. 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
  6. failure to forward customer payments to the manufacturer, wholesaler, assembler, or importer.

Third, the statute provides for arbitration as the sole remedy for the manufacturer, but allows a sales representative the option of arbitration or court. Subdivision 5 of the statute states that: “The sole remedy for a manufacturer, wholesaler, assembler, or importer who alleges a violation of any provision of this section is to submit the matter to arbitration. A sales representative may also submit a matter to arbitration, or in the alternative, at the sales representative’s option prior to the arbitration hearing, the sales representative may bring the sales representative’s claims in a court of law, and in that event the claims of all parties must be resolved in that forum.”   The statute also provides for attorneys’ fee shifting for prevailing sales representatives, but provides only limited fee-shifting for prevailing manufacturers.

For further information, please contact the Employment, Benefits, and Labor team at Briggs and Morgan.

About Neal Buethe

Neal Buethe is Head of Briggs and Morgan’s Employment, Benefits and Labor Section. Neal represents professionals, executives, for-profit employers, and non-profit organizations in employment and related matters. He is general counsel to several non-profit corporations, including religious organizations. For Neal’s full bio, click here.

Posted on August 11, 2011, in Terminations. Bookmark the permalink. Leave a comment.

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