The importance of a well-drafted sales representative agreement

by Christopher Graham and Joseph Kelly

Illinois

The Illinois Sales Representative Act protects sales representatives upon termination of their relationship with a company.

There’s no shortage of litigation under that statute and similar state statutes. Much of it involves disagreement over commissions owed when a business and independent sales representative end their relationship. See, e.g., Penzell v. Taylor, 219 Ill.App.3d 680 (1st Dist. 1991). Those suits often arise because parties have no contract or their contract doesn’t address payment of commissions upon termination with sufficient precision. Id. If the contract doesn’t expressly provide when commissions will be paid, the procuring cause rule may apply. Under that rule, “a party may be entitled to commissions on sales made after the termination of a contract if that party procured the sales through its activities prior to termination.” Id.

The Illinois Sales Representative Act provides that:

[a]ll commissions due at the time of termination of a contract between a sales representative and principal shall be paid within 13 days of termination, and commissions that become due after termination shall be paid within 13 days of the date on which such commissions become due. 820 ILCS 120/2

If commissions due at termination aren’t timely paid, the principal:

  • “shall be liable in a civil action for exemplary damages in an amount which does not exceed 3 times the amount of the commissions owed to the sales representative”; and
  • shall pay the sales representative’s reasonable attorney’s fees and court costs.

820 ILCS 120/3

The Act thus is a powerful weapon for an independent sales representative who claims a failure to pay commissions. As a Google search will show, potential exemplary damages and attorneys’ fees is an incentive for numerous attorneys to seek these cases and take them on a contingent fee basis. If the company is in Illinois but the sales representative is out-of-state, the out-of-state statute where the employee is located may apply.

A well-drafted sales representative agreement is the best solution for all concerned. And we will cover this topic in a later blog post.

Tags: Illinois, Sales Representative Act,

Category: Business Law Blog Comment »


Leave a Reply



Back to top