Legal questions and answers for Independent Medical Sales Reps, Medical Product Distributors and Medical Product Manufacturers
The questions and answers below are presented by A six-time Super Lawyer*, with vast experience handling unjustified terminations and territorial incursions by manufacturers, as well as recovering unpaid commissions. The information provided is intended to provide informative tools for both product suppliers and sales associates, but by all means, should not be considered “Legal Advice” due to the ever changing landscape for legal matters. MedCepts recommends contacting a legal representative directly.
Q: Do I always need to have a written contract with the manufacturers I choose to represent?
A: Here is the classic lawyer answer—It depends. Certain states, like California and New York, have laws that mandate written contracts between sales representatives and manufacturers. So, check the law in your state, and if you live in one where the law requires a written contract, you should have one. Second, for everybody else—written contracts are nice—in theory, but you should be very careful what you ask for. In practice, my sales clients are rarely presented with even-handed or even fair contracts. They are generally 30 pages of very one-sided boilerplate, in favor of the manufacturer—choosing the law of an unfavorable state, requiring disputes to be litigated in a far-away court, limiting the sales agent’s right to commissions at the end of the relationship, and some even containing non-compete agreements that limit a sale representative’s right to earn a living in a particular industry or in their home territory when the relationship ends. In those circumstances where your state law does not require a written contract, my advice is that a sales agent simply send each new manufacturer a brief letter, simply outlining the territory to be covered, the applicable commission rates, when commissions are to be paid (order receipt, shipment, customer payment), confirming that the manufacturer will provide documentation verifying commissions (commission statements, open order reports, shipping reports, etc.), and documenting whether house accounts are being reserved (or indicating that none have been designated). Generally, it is not necessary that anyone sign off on this letter. It is there simply to confirm the basic terms of the relationship, should they be disputed later.
Q: What should I do if I am presented with an unfavorable contract?
A: First thing you should do is change the things you don’t like. So many sales representatives think they have no power to bargain with manufacturers, and this ‘thought’ is their worst enemy. All the company can say is “no,” and then you go into the deal with your eyes open. Often, the manufacturer’s reaction to reasonable changes will clearly indicate there will be a problem down the road. You may decide you are better off not getting involved or you may be provided a mutually acceptable change.
Q: What if I am presented with a contract that chooses the law of a state other than my home?
A: This is an issue that blindsides many sales representatives. Some court’s have held that if a sales representative signs a contract, choosing the law of a state other than where he works or lives, he has waived any and all protection he may have under the laws of his home state—meaning that agent likely has no statutory rights or protection whatsoever. Some states have addressed this problem by amending their sales representative statutes to ensure that a choice of law provision, slipped into a lengthy contract, does not constitute a waiver of the salesman’s statutory rights (e.g. California, Georgia, New Jersey, New Hampshire). That is why it is critical that you check your state’s laws before signing any contract.
Q: What if a manufacturer unilaterally reduces my territory, cuts my commission rate or takes my biggest account in house?
A: This is a very common situation, and here are some thoughts on how to deal with it. First, check your applicable state law or your contract with the manufacturer to see if there is any limitation on the manufacturer’s right to undertake any of these actions. If the manufacturer did not reserve the right to make these changes in your contract, it may not have the discretion to do so unilaterally during the term of the contract. Second, make sure that the changes are not being implemented retroactively. Make sure and confirm in writing that the manufacturer is going to pay commission on all outstanding orders, existing programs or long-term customer contracts, even if the goods and services are to be delivered and paid for after the change goes into effect.
Q: What are my options when I have been fired with a phone call?
A: First, make sure you get paid for the work you did before you were fired. How? Make sure you can document all open orders, on-going long term programs or master supplier agreements you obtained for the manufacturer. Immediately write the manufacturer a letter outlining the commissions you believe are outstanding on pending business or programs; tell the manufacturer that you expect to be paid commission in a fashion consistent with past practice or your contract; tell the manufacturer that you expect to continue to receive all documentation necessary for you to reconcile your commission account with them. Second, see if you live in a state, such as Minnesota or Wisconsin, that regulates and limits a manufacturer’s ability to terminate an independent sales representative. For example, Minnesota prohibits a manufacturer from firing a sales agent with the phone call, unless the agent is guilty of gross misconduct. Moreover, even if the manufacturer believes there is a performance reason to end the relationship, the law requires between 90 and 180 days advance notice before a sales representative can be fired.
Q: What happens if a manufacturer refuses to pay me commissions after the end of our business relationship?
A: Many states have passed laws outlining when a commissioned salesperson is to be paid commissions when the relationship ends. There are many variations to each of these laws, but here are some common trends. Most of these statutes require payment within a certain period of time (grace period), and then impose a penalty if payment is not made. In some states, like Minnesota, the penalty is mandatory. In other states, like Illinois and Ohio, a penalty is imposed only if the failure to pay is “wanton or willful.” The amount of these statutory penalties also varies widely, but they are generally between one and three times the commissions owed.
Q: If I have to sue a manufacturer over commissions or termination, can I also recover my attorneys’ fees and costs of litigation?
A: In many states, the statute allows the prevailing in dependent sales representative to recover reasonable costs and attorneys’ fees in addition to commissions, penalties and damages. This means that if you sue, and you win, the court may award you some or all of your fees and litigation expenses, in addition to any damages awarded. Some statutes award fees and costs to the prevailing party, meaning if you win you will likely collect your costs and fees, but if you lose you will have to pay your own expenses plus that of the manufacturer. Obviously, it is a good idea to have this understood with your attorney before initiating suit.
Q: How do I go about choosing a lawyer to represent me?
A: My advice to all independent sales representatives is to establish a relationship with an attorney who not only understands the applicable laws, but also has extensive experience with how the sales and distribution business works. Ideally, this relationship should be established before there is a problem, because many of the situations addressed here require very prompt action. This means you should avoid hiring a lawyer who is your neighbor or your buddy, who does not practice in the area. You should not spend your money to educate your lawyer on how your business works. Get solid referrals from colleagues and trade associations. You should interview more than one lawyer—expect to pay for the time—because it is worth it to find an attorney who you feel comfortable talking to and who is committed to giving you good business advice. Of course, avoid the guy who says “sue them now, sue them today.”
Legal Representation: Exclusive Offering for Network Members
Did you know as an Independent Rep network member or supplier / manufacturer member of MedCepts you can be connected directly to a legal representative for legal consultation? FREE OF CHARGE (Limited to 1/2 hour consultation – when there is a need to review voluminous documentation (more than a simple contract) you may be asked to compensate for same, as it may be necessary to a useful consultation)
A six-time Super Lawyer*, with vast experience handling unjustified terminations and territorial incursions by manufacturers, as well as recovering unpaid commissions.
For Sales Reps: For over fifteen years, this firm has represented professional sales people from New York City to Los Angeles and in every major market in between, involving some of the largest companies in the world. While they take enormous pride in being able to bring most of these situations to a speedy and successful result, they boast of a litigation record in some of the most complex sales and distribution cases is unmatched.
For Distributors: Extensive experience serving the legal and business need of clients who own and operate distributorships. They review, negotiate and draft distributorship agreements, tailored to the specific needs of each business–including multi-year contract renewals. They help their distributorship clients through the loss of a major product line, tackling such issues as contract compliance, market withdrawal, and inventory valuation and reimbursement. They’ll take on territorial incursions and manufacturer direct sales into clients’ exclusive territories. They also help distributorship clients build and maintain dealer networks, advertising co-ops, and mediate dealer disputes.
Manufacturers and other vendor supplier network members are also eligible for an introduction to legal representation to assist them in preventing you (reps and distributors) from needing legal services. Prevention is a critical element in many ways in the healthcare industry!
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Legal representation provided as outlined above is just another added service or benefit provided by special arrangements MedCepts has made on behalf of our subsribing members. Changes to membership benefits are ongoing, inclusive of (but not limited to) the addition and/or removal of benefits, and therefore subscription as a member should not be based on benefits offered as they may change without notification. MedCepts does not guarantee membership benefits or specific results between parties.
MedCepts is positioned as the liaison for Independent Medical Reps, Distributors, Manufacturers, healthcare providers and ancillary service providers in the medical and healthcare industries – discussions typically include considerations from multiple sides. Information provided in our “Discussions” for independent sales reps offers tools for those working with independent reps such as manufacturers and other suppliers seeking to prevent some of the following issues. In short, resource material is provided and educational for ALL network members.
MedCepts as an Alternative to a Mediator – very often MedCepts will “listen in” to concerns between network distributors, independent reps and even between suppliers and reps aligned. Most of the time an amicable decision is met and both parties move on to what really drives them – increased revenue from sales closed. However, there are common questions both parties, reps and suppliers, should consider regarding legal concerns. MedCepts Liaison Positioning