Independent Sales Rep Contracts

Are you a "manufacturer, jobber or distributor selling tangible or intangible products through independent wholesale sales representatives ("sales reps") intended for resale to or use by consumers in California?"

If so, regardless of the state in which you are located, California Civil Code Sections 1738.10 through 1738.17 require written agreements with your independent contractor sales reps and mandate that certain terms be included in them. This law applies when the sales rep "is not an employee," the sales rep "will solicit orders at least partially within this state" and "the contemplated method of payment is commissions."

Your contract must include:

(a) commision rate and method of computation;

(b) when commissions will be paid;

(c) the sales rep's assigned territory and customers therein;

(d) charge backs against the commissions, if any.

Omit a term at great risk! Suppose you assigned Los Angeles County a sales rep Jones' territory. However, the contract did not specifically exclude your house accounts such as WalMart and Sears from the territory. For the entire contract term, you must pay commissions to Jones on those two house accounts.

you must also include the following information with your commission checks:

(a) a written accounting of the orders for which commission payment is made including the customer's name and invoice number;

(b) the rate of commission on each order; and

(c) information relating to any chargebacks included in the accounting.

If you "willfully" fail to enter into the written contract or if you "willfully" fail to pay the right commissions, you will be liable for treble (triple) the damages that would otherwise be awarded to the sales rep. The statute allows the prevailing party to recover reasonable attorney's fees and costs incurred in the civil action.

To comply with this Law, establish and enforce a written policy to ensure that:

1. your staff completes a checklist form for each new sales rep;

2. your staff uses the company's standard form contract for each independent contractor sales rep;

3. each new sales rep signs and dates ("executes") a written sales contract;

4. each new sales rep signs and dates a receipt acknowledging that the sales rep received a copy of the signed contract (an "acknowledgment receipt");

5. your staff provides each sales rep with the minimum required commission information with each commission payment;

6. your staff retains the signed original contract and the signed acknowledgment receipt for your company's records and gives one signed copy to the sales rep; and

7. your company keeps the original signed contract and signed acknowledgment receipt in a locked, fireproof file cabinet; keeps a signed copy of each in a more accessible file; and sends a copy of each document to your attorney for his files.