Breaking Up Is Hard To Do (Particularly If You Want to Cut Loose a Sales Rep in Minnesota)

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Imagine that Manufacturer A has been selling products of Company B for downstream sale to retailers for many years throughout the state (or some other defined region). Imagine that A & B’s agreement was for a one year term, automatically renewing unless and until either party gives 90 days advanced notice to the other of its intent to terminate the arrangement.

Does this not sound quite simple — like a year-to-year lease arrangement or any kind of term agreement subject to renewal?

Wouldn’t you think that Manufacturer A could, consistent with its contract with B, give the appropriate notice,  terminate Company B, and sign on another business partner? Is there something wrong with that? Would it be “unethical”?

Many states, including Minnesota, have what some statutes to protect “sales representatives,” whose livelihoods can be so fundamentally intertwined with the manufacturers whom they serve. State legislatures give sales representatives leverage that they do not have as a matter of contract law. (Minnesota’s Sales Representative statute is here.) It seems to me to be like a form of economic protectionism because sales reps are inherently local and manufacturers are more likely to be the out-of-state players. (If manufacturers weren’t out of state, why would they hire sales reps rather than sell their own stuff?)

Here is a recent complaint in which the jilted sales representative almost sounds like a spurned lover, relentlessly harping on its years of hard work and loyalty, and juxtaposing that devotion against the manufacturer’s fickle cruelty. It might be a problem for the strident Plaintiff that the agreement it is suing about has an Illinois choice-of-law and forum selection provision (here). We’ll have to wait and see whether Defendant VTech plays the old “up and out” (removing a case from state court to federal court, then from one federal district court to another district (in Illinois)).

And here is recent decision from the U.S. District Court (D. Minn.) in which a disappointed ex-business partner tried very hard but unsuccessfully to shoe-horn its agreement with a manufacturer into a “sales representative agreement” in order to benefit from Minnesota’s sales rep statute (and those of neighboring states).

The take-away for Minnesotans and small businesses who might not be knowledgeable about the law is that private agreements, contracts between two or more parties, are merely the starting points and not the endpoint defining rights and obligations in contractual relationships.