The Michigan Sales Represetatives Commission Act: Protecting yourself

The Michigan Sales Representatives Commission Act ("SRCA"), MCLA 600.2961, provides protection for independent sales representatives from manufacturers or suppliers who improperly refuse to pay commissions for goods sold. The text of the SRCA also requires that commissions be paid to sales representatives on a timely basis, leaving the definition of "timely" to the contract between the principal and the sales representative. However, if the contract does not state when the commissions are due, the past practices between the parties will control. If there are no past practices between the parties, the custom and use prevalent in the state for that business controls.

According to the SRCA, if a sales representative's contract is terminated, all commissions that are due at the time of the termination must be paid within 45 days after the date of termination. If commissions become due after the termination date of the contract, they must be paid within 45 days after the date in which they became due. These requirements are set in stone, so to speak, by the SRCA and cannot be waived by individual contracts.

Under SRCA, a manufacturer or supplier who fails to comply with the law for timely payment of commissions is responsible for actual damages for failure to pay the commissions. Additionally, if the manufacturer or supplier is found to have "intentionally" failed to pay the commissions when due, the sales representative is entitled to two times the amount of the commission or $100,000, whichever is less. If the sales representative files a lawsuit pursuant to the SRCA, the court is also required to award the prevailing party reasonable attorneys’ fees and court costs.

Up to this point, it has been unclear what the word "intentional" in the Act means; i.e., whether it requires an act of bad faith or simply means the withholding of a commission on any basis other than inadvertent error or accident. Recently a Sixth Circuit Court of Appeals decision has requested the Michigan Supreme Court to define the term "intentional" in the statute. Though no decision has been made, should the Michigan Supreme Court decide that the word intentional does not require a showing of bad faith, the SRCA will continue to be a significant danger to those manufacturers and suppliers who wish to withhold commissions from a salesperson, even if they do it in good faith. Until the Michigan Supreme Court rules on this question, manufacturers and suppliers should operate with caution as they may be liable for the double damages even if they withhold commissions based on a good faith disagreement with the sales representative.

At a minimum, though, manufacturers should make sure that the contract with their sales representatives explicitly set forth when and under what circumstances a commission is going to be paid. In a situation in which a part of a commission is disputed and another is not, the undisputed part should be paid so as to minimize damages.

Should a decision be made to not pay a commission, manufacturers and suppliers should fully document their reasons for withholding it. This will allow them to more easily make the argument that the commissions were not owed to the sales representative if the sales representative later files suit for those commissions. If there are significant dollars involved, it may be wise for the parties to a commission dispute to consult legal counsel early in the dispute process.