8th Jan 2018

 

Legal technicalities may not be invoked to avoid paying sales agents’ commissions. That’s the essence of Michigan’s procuring cause doctrine – an equitable doctrine established by Michigan’s supreme court to protect commission based sales agents.[1] This doctrine protects all manner of sales agents including manufacturer’s reps, purveyors of information systems technology and software, employment recruiters, etc. Before it became law principals could avoid paying commissions by terminating agents’ authority strategically, just before sales were consummated.[2] Under the procuring cause doctrine agents are entitled to commissions if their work results in sales, even if they’re “terminated” before a deal goes through.[3] When agents’ work results in sales finalized after their termination, rights to post-termination commissions are generated. Two time frames bear upon commission rights – the time necessary to cultivate the sale, that is, the pre-sale lead time, and the post-sale duration of continuing, recurring, renewal, or installment orders.

            Pre-Sale Lead Time Work – Staking the Claim

The dividends of hard work are often realized over time. For commission based agents pre-sale lead time work is the heavy lifting that can yield fruit. That work remains uncompensated until a sale happens, but once it does, the agent must be paid. Different industries require different measures of pre-sale work with different lead times. Such work can be extensive. Only after the work starts yielding fruit do compensation disputes arise, and when they do the nature and extent of lead time work can bolster agents’ equitable claims to post-termination commissions. From an agent’s perspective – and a judge or jury’s – it’s pretty basic that once one party performs its end of a bargain the other party must perform its end too. That’s what bilateral contracts are all about, reciprocal obligations. Agents seeking commissions therefore naturally emphasize the lead time work done to support their claims. The more time and effort agents spend procuring sales during the lead time, the stronger their claims to commissions.

            Post-Sale Legs – Broadening the Claim

Also important – do the earned sales have legs? In other words, will a sale result in continuing revenues for a principal (and continuing duty to pay commissions)? Again, much depends on the industry or business sector involved. In the automotive parts industry, product purchase orders last years, sometimes spanning the life of the part for an automobile model run. Other business sectors also have recurring, renewal aspects to their sales too. When an industry’s sales have legs, and revenues continue, principals often shift focus to agents’ account servicing. Perceived deficiencies in contractually required account servicing may be used to justify withholding commissions. Contract language is important. In Michigan, if sales have legs the right to commissions can extend beyond an initial sale or order and result in damages claims that are extensive and open ended.

            Forfeiting Commissions – Minding the Claim

Commission based sales agents often stand at an economic disadvantage vis-à-vis the principals for whom they work. In some industries principals also benefit from a revolving door business model by which agents routinely forfeit commissions to their principals, wittingly or not. That’s because in industries having high turnover rates, principals are more likely to benefit from agents leaving or disassociating from the principal (for whatever reason) as those agents may lose out on commissions from pending and forthcoming sales remaining in the principal’s pipeline at the time of their disassociation – sales that principals may take credit for and deem “houseaccounts. Sometimes such commissions are properly lost, sometimes they’re not. When commissions are earned they should be paid, not forfeited. The longstanding legal principle supporting this position is that “equity abhors a forfeiture.”[4]

            Closing Thoughts

 

Lee J. Cobb, an Arthur Miller favorite

The procuring cause doctrine (along with Michigan’s Sales Representative Act[5]) serves to ameliorate the harsh effects of standard agency law that would allow agents’ authority to be strategically terminated to avoid paying commissions. It gives legal support to agents whose claims for commissions may already be sympathetically presented. After all, there’s some emotional appeal to the plight of agents who’ve performed their end of a bargain and whose labor has yielded fruit, but who remain unpaid. In the right case it would not be hard to imagine a lawyer’s closing argument playing on such sympathy – perhaps by gently paraphrasing Arthur Miller, who famously wrote in a play about an aggrieved saleman, “You can’t eat the orange and throw the peel away – a man is not a piece of fruit.”[6]

 

(* Del A. Szura is a member of Szura & Delonis, PLC. This post is intended for general information and educational purposes and should not be construed as legal advice. All Rights Reserved. Copyright 2018.)

 

[1] Kelso v. Woodruff, 88 Mich. 299 (1891)(real estate sales commissions).

[2] The general rule under agency law is that a principal may terminate an agent’s authority at any time. Restatement Third Agency § 3.10 (2006).

[3] In Reed v. Kurdziel, 352 Mich. 287, 294-5 (1958), the court explained that even “if the authority of the agent has been cancelled by the principal, the agent would nevertheless be permitted to recover the commission if the agent was the procuring cause” of the sale. See also, Militzer v. Kal-Die Casting Corp, 41 Mich. App. 492 (1972).

[4] Negaunee Iron Co. v. Iron Cliffs Co., 134 Mich. 264, 276 (1903), see also, Erickson v. Dart Oil & Gas Corp., 189 Mich. App. 679, 693 (1991).

[5] M.C.L. 600.2961.

[6] Willy Loman, Death of a Salesman, Act 2, Scene 2.

 

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