Navigating the Minnesota Termination of Sales Representative Act

At a Glance

• To determine if an agreement is covered by the Act, the contracting party must qualify as a “sales representative” and the agreement must qualify as a “sales representative agreement” under the Act’s definitions.
• Assuming the Act governs the agreement, the Act substantially limits the circumstances in which the agreement may be terminated. Failure to comply with the terms of the Act may carry steep penalties.

In an age of global commerce, product manufacturers and wholesalers often utilize independent sales representatives to help them secure contracts with retailers selling goods to end users. Put simply: instead of Manufacturer knocking on the doors of Stores 1 through 50 asking if they will sell the Manufacturer’s widgets to customers, Manufacturer contracts with Sales Representative to door-knock on its behalf. For many manufacturers and wholesalers, this arrangement involves multiple relationships with sales representative organizations in multiple states. 

But what happens when that contractual relationship breaks down, and the sales representative agreement terminates? The answer varies from state to state and requires familiarity with each state’s sales representative statutes. 

In Minnesota, the Minnesota Termination of Sales Representatives Act, Minn. Stat. § 325E.37, can be a tripwire for the unaware. 

History of Minn. Stat. § 325E.37

Originally enacted in 1990, the Minnesota Termination of Sales Representatives Act governs the termination of agreements between independent sales representatives with wholesalers and manufacturers. The Act sets forth strict criteria for how and when agreements may terminate, and what compensation sales representatives are entitled to in various instances. 

As originally drafted, parties to a sales representative agreement could avoid the Act’s requirements by agreeing that the law of a different state applied. In 2014, however, the Minnesota legislature amended the statute to add an anti-waiver provision stating that a wholesaler/manufacturer may not “circumvent compliance” by including “an application or choice of law of any other state” or “a waiver of any provision” of the Act. 

Accordingly, wholesalers and manufacturers engaging with sales representatives in Minnesota would do well to understand its application. Below, we provide a checklist for determining whether the Act applies to your agreement and outline the various ways agreements may terminate in compliance with the Act. 

Is My Agreement Covered by the Act?

To determine if an agreement is covered by the Act, the contracting party must qualify as a “sales representative” and the agreement must qualify as a “sales representative agreement” under the Act’s definitions. 

Provided all of the following are true, a contractor will be considered a covered “sales representative” under the Act if the contractor:

• Solicits orders for goods by entities in the distribution chain for ultimate sale at retail; 
• Is compensated, in whole or in part, by commission; 
• Is a resident of Minnesota, maintains a principal place of business in Minnesota, or has a geographic territory specified in the agreement that includes at least part of Minnesota; 
• Is not an employee of the wholesaler, manufacturer, assembler or importer (hereinafter collectively referred to as the “Principal”); 
• Is not placing orders for their own account for resale; 
• Does not hold the goods on a consignment basis for the Principal’s account for resale; and
• Does not distribute, sell or offer goods to end users at retail (excluding samples). 

• Sales representative is granted the right to sell the Principal’s goods; 
• Sales representative is granted the right to use the Principal’s trade name, trademark, service mark, logotype, advertising, or other commercial symbol or related characteristic to effect sales; and 
• There exists a community of interest between the parties in the marketing of the goods at wholesale. 

How Can the Agreement Terminate in Compliance With the Act? 

Assuming the Act governs the agreement, the agreement may only be terminated in the following limited circumstances:

Option 1: Immediate Termination With Good Cause. A Principal may lawfully terminate the agreement immediately upon written notice if at least one of the following is true: 

• The sales representative has gone bankrupt or is insolvent; 
• The sales representative’s business assets have been assigned for the benefit of creditors; 
• The sales representative has voluntarily abandoned their business; 
• The sales representative has pleaded guilty or no contest to a charge of violating any law relating to their business; 
• The sales representative has materially impaired the good will associated with the Principal’s trademark, trade name, service mark, logotype or other commercial symbol; or 
• The sales representative has failed to forward customer payments to the Principal. 

Under this option, the sales representative must be paid the commissions to which they would have otherwise been entitled for all sales made prior to the termination date, regardless of whether the goods actually shipped as of the termination date. 

Option 2: Delayed Termination With Good Cause. In the absence of one of the above-listed factors, the Principal may lawfully terminate the sales representative agreement if all of the following are true:

• The Principal has “good cause” to terminate the agreement (including, but not limited to, breach by the sales representative);
• The Principal has given written notice setting forth the reason(s) for the termination at least 90 days in advance of the termination; and 
• The sales representative has failed to correct the reasons stated for termination in the notice within 60 days of receipt. 

Under this option, the sales representative must be paid the commissions to which they would have otherwise been entitled for all sales made (1) before the termination date or (2) within the 90-day notice period (whichever is longer) regardless of whether the goods actually shipped. 

Option 3: Decline to Renew Definite-Duration Agreement. Without cause, for sales representative agreements of definite duration, the Principal can elect not to renew the agreement if the Principal gave written notice of its intention not to renew the agreement at least 90 days in advance of the agreement’s expiration date. 

Under this option, the sales representative must be paid the commissions to which they would have otherwise been entitled for all sales made prior to the agreement’s defined expiration date, regardless of whether the goods actually shipped as of that date. 

Option 4: Decline to Renew Indefinite-Duration Agreement. Without cause, for sales representative agreements of indefinite duration, the Principal may only elect not to renew the agreement and only if the Principal gives written notice of its intention not to continue with the contractual relationship. 

Under this option, the sales representative must be paid commission to which they would have otherwise been entitled for all sales made 180 days after written notice is given, regardless of whether the goods actually shipped by the 180th day.

Potential Remedies 

Failure to comply with the terms of the Act when terminating a sales representative agreement may carry steep penalties, including, but not limited to, (1) reinstatement of the sales representative agreement; (2) damages; and (3) attorneys’ fees and costs. 

Critically, at least one court has held that damages under the Act are not limited to the commission that would have been paid had the contract terminated appropriately. In Wingert v. Associates, Inc. v. Paramount Apparel Intern, Inc., 2005 WL 2847323 (D. Minn. Oct. 31, 2005), the District of Minnesota upheld a jury verdict awarding the sales representative five years of lost profits when the apparel manufacturer failed to give the sales representative the requisite 180-day notice of the termination of the indefinite agreement. 

Conclusion

Manufacturers and wholesalers utilizing independent sales representatives in Minnesota should use caution and seek the advice of counsel before terminating a sales representative agreement. Further, as many states have their own unique variations of independent sales representative statutes, state-by-state compliance is necessary to avoid liability.