The importance of a well-drafted sales representative agreement – Part 2

by Christopher Graham and Joseph Kelly

Illinois

As discussed in an earlier post, Illinois businesses are subject to severe penalties if commissions due sales representatives aren’t paid consistent with the Illinois Sales Representative Act. Businesses run into trouble when they have an agreement with a sales representative that doesn’t address with specificity how sales commissions will be addressed when the relationship ends. Sales representatives sometimes even will argue for a commission in perpetuity for sales to a customer the representative initially brought to the business. More frequently, disputes concern a sale in progress, but not consummated until after the sales representative’s relationship with the business terminated.

The common law “procuring cause” doctrine exists in Illinois and other states to resolve the issue where the parties’ agreement doesn’t do the job. Under the “procuring cause” doctrine, sales representatives earn commissions on a sale finalized after termination if the sales representative “procured” the sale through actions before termination. See, *i.e., Scheduling Corp. of America v. Massello, 151 Ill. App. 3d 565, 568, 503 N.E.2d 806 (1st Dist. 1987). A main purpose of “procuring cause” is to prevent businesses from shirking their commission obligations right before a particular sale concludes. Id. Under “procuring cause”, a sales representative that has done everything to effect a sale is entitled to a commission. Id.. But the “procuring cause” doctrine doesn’t apply when parties have an unambiguous written agreement stating when commissions are earned. Solo Sales, Inc. v. North America OMCG Inc., 299 Ill. App.3d 849 (2nd Dist. 1998). The trick is to draft the agreement to address the issue with particularity, so there’s no debate about what was intended.

As we’ll explain in another post next month, a well-drafted sales representative agreement that clearly defines when commissions are earned also will help a business avoid the Act’s severe penalties.

Tags: Illinois, Illinois Sales Representative Act, procuring cause

Category: Business Law Blog Comment »


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