Manufacturer Representative Agreement in Minnesota

What Does a Manufacturer Representative Agreement Need to Cover?

A manufacturer representative agreement should define the products, territory, accounts, and commission. It should also state the term, how either side may end it, what is paid after it ends, and where disputes go. For a rep covered by § 325E.37, the statute sets the floor for the termination and post-termination terms.

The core terms are:

1. Products and lines. Which products the rep may sell, and whether new products are added automatically.
2. Territory and accounts. The geography or customer list, any house accounts the principal keeps, and whether the rep is exclusive.
3. Commission. The rate, the base (gross invoice, net of returns and freight), the event that earns it, and when it is paid.
4. Term and termination. A fixed term or an open-ended one, the grounds and notice for ending it, and the cure period.
5. After the end. Which orders still pay commission and on what schedule.
6. Restrictions. Confidentiality, customer nonsolicitation, and any competing-line limits.
7. Disputes. Governing law, venue, and arbitration.

The statute does not set a rate or decide which accounts are commissionable. Its post-termination rule pays the rep for sales on which the rep “would have been entitled to commissions pursuant to the provisions of the sales representative agreement” (§ 325E.37, subd. 4). That makes the commission clause the measure of what the statute protects after termination.

When Does Minnesota’s Sales Representative Statute Apply?

Section 325E.37 applies to a person who contracts with a principal to solicit wholesale orders and is paid at least partly by commission. The agreement must let the rep sell the principal’s goods under the principal’s trade name or other commercial symbol, with a community of interest in marketing them at wholesale. The rep must also live or be based in Minnesota, or have a territory that includes part or all of Minnesota, during some part of the agreement.

Subdivision 1(d) defines a “sales representative” as “a person who contracts with a principal to solicit wholesale orders and who is compensated, in whole or in part, by commission.” A “person” includes “a partnership, corporation, and all other entities” (subd. 1(c)), so a rep agency qualifies. “Wholesale orders” also “includes material, component, or part orders for use or incorporation into a product, and later resold” (subd. 1(f)), which brings in reps selling parts to other manufacturers.

The agreement itself need not be written, because subdivision 1(e) covers “a contract or agreement, either express or implied, whether oral or written, for a definite or indefinite period.” The same definition requires that the rep be “granted the right to represent, sell, or offer for sale a manufacturer’s, wholesaler’s, assembler’s, or importer’s goods by use of the latter’s trade name, trademark, service mark, logotype, advertising, or other commercial symbol or related characteristics,” and that “there exists a community of interest between the parties in the marketing of the goods at wholesale” (subd. 1(e)). Under subdivision 6(a), the section applies to a rep who, during some part of the agreement, “is a resident of Minnesota or maintains that person’s principal place of business in Minnesota” or “whose geographical territory specified in the sales representative agreement includes part or all of Minnesota” (subd. 6(a)(2)). The section does not define “resident.” A rep agency incorporated in Minnesota but run from another state need not rely on residence alone when its territory includes part of Minnesota.

The statute excludes a person who:

1. “is an employee of the principal”
2. “places orders or purchases for the person’s own account for resale”
3. “holds the goods on a consignment basis for the principal’s account for resale”
4. “distributes, sells, or offers the goods, other than samples, to end users, at retail.”

The second exclusion separates a rep from a reseller working under a distribution agreement. In Midwest Sports Marketing, Inc. v. Hillerich & Bradsby of Canada, Ltd., 552 N.W.2d 254 (Minn. Ct. App. 1996), the court said “the essential inquiry is whether the person claiming to be a sales representative was a sales representative when the principal terminated the sales representative agreement.” Coverage also stops at the principal. In Dachtera v. Whitehouse, 609 N.W.2d 248 (Minn. Ct. App. 2000), the court held that “Minn.Stat. § 325E.37 applies to agreements between a sales representative and a principal, not to agreements between two sales representatives.”

How Should the Agreement Define Territory, Accounts, and Exclusivity?

Territory, house accounts, and exclusivity are contract terms with no Minnesota statute behind them, so the agreement should state each one precisely. The territory clause can also bring a rep under § 325E.37, because subdivision 6(a)(2) reaches a sales representative whose territory in the agreement includes part or all of Minnesota.

A territory defined by geography alone invites disputes when a customer buys in one state and ships to another, or when a national account has plants in several territories. I suggest defining the territory by the customer’s ship-to location or by a named account list, because that fact decides who is paid when a sale crosses territory lines. The agreement should also say which rep earns the commission on a split shipment. I suggest addressing overlapping sales territories in the agreement.

House accounts deserve a written list. An account the principal already sells to, and does not want to pay commission on, should be named in the agreement as a house account or carved out of the commission base. In one engagement for a principal, my revision of the rep’s draft proposed paying commission each year only on business above a baseline equal to the existing annual business with one customer.

Exclusivity should run both ways in writing. If the rep is exclusive in the territory, say whether the principal’s direct sales and internet sales into the territory pay commission. If the rep may carry other lines, say whether competing lines are allowed during the term.

How Should the Commission Clause Define When a Commission Is Earned?

The commission clause should state the rate, the base, and the event that earns the commission, such as order acceptance, shipment, invoice, or the customer’s payment. For the purposes of its own prompt-payment duty and penalty, Minnesota’s commission statute counts commissions on goods or services delivered to and accepted by the customer by the last day. It does not impair collecting commissions on merchandise ordered earlier but delivered and accepted later.

Section 181.145 covers a “commission salesperson,” defined as “a person who is paid on the basis of commissions for sales and who is not covered by sections 181.13 and 181.14 because the person is an independent contractor” (§ 181.145, subd. 1). It defines “commissions earned through the last day of employment” as “commissions due for services or merchandise which have actually been delivered to and accepted by the customer by the final day of the salesperson’s employment.” Subdivision 5 adds: “Nothing in this section shall be construed to impair a commission salesperson from collecting commissions on merchandise ordered prior to the last day of employment but delivered and accepted after termination of employment.”

Commission disputes can arise even under clear terms. McClure v. Davis Engineering, L.L.C., 716 N.W.2d 354 (Minn. Ct. App. 2006), involved an oral agreement. Under it, the manufacturer “was to pay McClure Associates a 10% commission on the gross invoice price for all sales that McClure Associates brought to Douglas Machine, with payment to McClure Associates to be made when Douglas Machine received payment from the purchaser.” The parties still litigated the amount of one commission. The court also held that “the term “person” in section 181.145, subdivision 1, includes a corporation,” so a rep agency organized as a corporation can use the statute.

I suggest the commission clause answer these questions in writing, because during the relationship the agreement, not a statute, answers each of them:

• What the base is: gross invoice price, or net of returns, discounts, freight, and taxes.
• What earns the commission: the order, the shipment, the invoice, or the customer’s payment.
• Whether a commission paid on a sale is charged back if the customer returns the goods or never pays, which is the subject of whether you can claw back commissions.
• When commissions are paid, and what monthly statement the principal sends with them.

What Termination Terms Hold Up Under Minnesota Law?

For a covered rep, a principal terminating for good cause must give written notice stating the reasons at least 90 days ahead. The rep must then fail to correct them within 60 days of receipt of the notice. Notice for six listed grounds, such as insolvency, “is effective immediately upon receipt.” Unless the nonrenewal is for good cause the rep failed to correct, nonrenewal takes 90 days’ written notice before expiration. As the Minnesota Court of Appeals read subdivision 3, a principal may end an agreement of indefinite duration “without cause, by giving 180 days’ written notice.”

Subdivision 2(a) states that a principal “may not terminate a sales representative agreement unless the person has good cause and” two more conditions are met. The principal must have “given written notice setting forth the reason(s) for the termination at least 90 days in advance of termination” (subd. 2(a)(1)). The rep must also fail to cure, so termination requires that “the recipient of the notice fails to correct the reasons stated for termination in the notice within 60 days of receipt of the notice” (subd. 2(a)(2)). Under subdivision 2(b), a notice “is effective immediately upon receipt” only for the six grounds listed in subdivision 1(b). Those grounds include “the bankruptcy or insolvency of the sales representative” and “failure to forward customer payments to the manufacturer, wholesaler, assembler, or importer.” A clause allowing immediate termination for any breach therefore reaches further than the statute allows for a covered rep.

Good cause is “a material breach of one or more provisions of a written sales representative agreement” (subd. 1(b)). That definition rewards a principal who writes the performance standards into the agreement: minimum calls, reporting, sales targets, and the duty to forward customer payments. Without a written agreement, good cause becomes the rep’s “failure by the sales representative to substantially comply with the material and reasonable requirements imposed by the manufacturer, wholesaler, assembler, or importer.”

The term clause matters as much as the termination clause. Under subdivision 3, “Unless the failure to renew a sales representative agreement is for good cause, and the sales representative has failed to correct reasons for termination as required by subdivision 2, no person may fail to renew a sales representative agreement unless the sales representative has been given written notice of the intention not to renew at least 90 days in advance of the expiration of the agreement” (subd. 3). The same subdivision provides that “a sales representative agreement of indefinite duration shall be treated as if it were for a definite duration expiring 180 days after the giving of written notice of intention not to continue the agreement” (subd. 3). In Midwest Sports, the contract allowed either side to end it on 90 days’ notice. The court reasoned that “subdivision 3 permits a principal to end a sales representative agreement of indefinite duration, without cause, by giving 180 days’ written notice.” In one matter for a rep agency, I prepared a demand letter to one of its principals for the commissions owed for that 180-day period, modeled on an earlier demand letter to another principal. The Minnesota Termination of Sales Representatives Act page walks through each termination route in detail.

What Must the Agreement Pay After It Ends?

A covered rep is paid for every sale that would have earned a commission under the agreement. The sale must have been made before the later of the termination date or the end of the notice period, whether or not the goods have shipped. The agreement sets when that money is paid; if it says nothing, § 181.145 sets the schedule.

Subdivision 4 entitles the rep “to be paid for all sales as to which the representative would have been entitled to commissions pursuant to the provisions of the sales representative agreement, made prior to the date of termination of the agreement or the end of the notification period, whichever is later, regardless of whether the goods have been actually shipped.” It then provides that commissions “shall be paid in accordance with the terms of the sales representative agreement or, if not specified in the agreement, payments of commissions due the sales representative shall be paid in accordance with section 181.145.”

Section 181.145 requires the principal to “promptly pay the salesperson, at the usual place of payment, commissions earned through the last day of employment” (subd. 2(a)). A principal whose rep handled money or property “has ten working days after the termination of employment to audit and adjust the accounts of the salesperson before the salesperson can demand commissions earned through the last day of employment” (subd. 2(d)). Late payment carries “a penalty for each day, not exceeding 15 days” (subd. 3), but “the penalties prescribed in subdivision 3 apply only with respect to the payment of commissions earned through the last day of employment” (subd. 5). In a dispute over the amount, the penalty does not apply if the principal timely “pays the amount it in good faith believes is owed,” unless a greater amount is later adjudicated (subd. 4(a)).

I suggest the agreement state a final-accounting schedule and say how orders received during the notice period are credited, because subdivision 4 reaches sales made through the end of that period. The commissions an independent rep keeps after termination page covers the demand, the penalty, and disputed amounts.

Which Governing-Law, Venue, and Dispute Terms Are Void?

For a covered rep, subdivision 7 voids a term choosing another state’s law or waiving any part of § 325E.37 in agreements entered into, renewed, or amended on or after August 1, 2014. It also voids a term choosing a venue in another state in agreements entered into, renewed, or amended after August 1, 2022. The Eighth Circuit has treated an open-ended agreement as renewed when the rep kept soliciting orders with the principal’s consent or acquiescence after August 1, 2014.

Subdivision 7(a) bars a principal from including a term that includes or purports to include “an application or choice of law of any other state,” “a choice of venue in any other state,” or “a waiver of any provision of this section” (subd. 7(a)). Subdivision 7(b) provides that “Any term or provision described in paragraph (a) is void and unenforceable” (subd. 7(b)). The 2014 session law applies the choice-of-law and waiver bar to “sales representative agreements entered into, renewed, or amended on or after that date” (Laws 2014, ch. 165, § 1). The 2022 session law that added the venue bar applies to agreements “entered into, renewed, or amended after that date” (Laws 2022, ch. 51, § 1). An amendment to an older agreement can bring it under these rules, so a principal amending a rate or a territory should expect subdivision 7 to apply to the amended agreement. An older agreement can also come under subdivision 7 without an amendment. In one case, the agreement was of indefinite duration and was signed in 2001. Predicting how the Minnesota Supreme Court would read Minnesota law, the Eighth Circuit held: “Because Engineered Sales continued to solicit orders with E+H’s “consent or acquiescence” after August 1, 2014, the parties’ Agreement was renewed after August 1, 2014, making the anti-waiver provision applicable to its terms” (Engineered Sales, Co. v. Endress + Hauser, Inc., 980 F.3d 597 (8th Cir. 2020)). The court noted: “The Minnesota Supreme Court has not yet had an opportunity to rule on the Act’s definition of “renewed.”” The chief judge dissented. The general rules for choice-of-law clauses give way to subdivision 7 for these agreements.

The statute also sets the forum. Under subdivision 5(a), “The sole remedy for a manufacturer, wholesaler, assembler, or importer who alleges a violation of any provision of this section is to submit the matter to arbitration.” The rep may arbitrate too, or “at the sales representative’s option prior to the arbitration hearing, the sales representative may bring the sales representative’s claims in a court of law.” Under subdivision 6(b), “To be effective, any demand for arbitration under subdivision 5 must be made in writing and delivered to the principal on or before one year after the effective date of the termination of the agreement” (§ 325E.37, subd. 6(b)); I suggest checking the current text of the statute before relying on that period. The remedies include “reinstatement of the sales representative agreement, or damages” and “reasonable attorneys’ fees and costs to a prevailing sales representative” (subd. 5(b)). Subdivision 5 gives the rep the option to bring its claims in court before the arbitration hearing, and subdivision 7 voids a term waiving any provision of the section. A written arbitration clause in a contract evidencing a transaction involving commerce is also subject to the Federal Arbitration Act, 9 U.S.C. § 2.

How Do Noncompete and Nonsolicitation Terms Work in a Rep Agreement?

A covenant not to compete with an individual independent rep is void in an agreement entered into on or after July 1, 2023. The ban also reaches an entity the principal required the individual to form. Confidentiality and customer nonsolicitation terms fall outside the ban.

Section 181.988 defines “employee” as “any individual who performs services for an employer, including independent contractors” (subd. 1(c)). An “independent contractor” is “any individual whose employment is governed by a contract and whose compensation is not reported to the Internal Revenue Service on a W-2 form,” and also includes “any corporation, limited liability corporation, partnership, or other corporate entity when an employer requires an individual to form such an organization for purposes of entering into a contract for services as a condition of receiving compensation under an independent contractor agreement” (subd. 1(d)). Under subdivision 2(a), “Any covenant not to compete contained in a contract or agreement is void and unenforceable.” The 2023 session law applies the section “to contracts and agreements entered into on or after that date,” July 1, 2023.

The definition leaves room for other protections. Subdivision 1(a) provides: “A covenant not to compete does not include a nondisclosure agreement, or agreement designed to protect trade secrets or confidential information. A covenant not to compete does not include a nonsolicitation agreement, or agreement restricting the ability to use client or contact lists, or solicit customers of the employer.” A void noncompete does not take the rest of the agreement down with it: “Nothing in this subdivision shall be construed to render void or unenforceable any other provisions in a contract or agreement containing a void or unenforceable covenant not to compete” (subd. 2(c)). I suggest a principal rely on a confidentiality term and a customer nonsolicitation term rather than a competing-line ban that runs after the agreement ends, because those terms fall outside the statute’s definition. The statute’s definition reaches a restriction that applies “after termination of the employment” (subd. 1(a)), so a limit on competing lines during the term is outside it. Well-drafted confidentiality clauses that survive termination protect pricing and customer data after the agreement ends.

The sale of a rep agency is a separate case. Under subdivision 2(b)(1), the seller, its partners, members, or shareholders, and the buyer of a business “may agree on a temporary and geographically restricted covenant not to compete that will prohibit the seller of the business from carrying on a similar business within a reasonable geographic area and for a reasonable length of time.” Subdivision 2(b)(2) has a parallel exception where “the covenant not to compete is agreed upon in anticipation of the dissolution of a business.”

What Makes a Rep an Independent Contractor Rather Than an Employee?

Calling a rep an independent contractor in the agreement does not make the rep one. For its misclassification rules, § 181.722 decides employee status using the same tests as Minnesota’s workers’ compensation and unemployment insurance laws. An agreement that labels an employee an independent contractor is itself a violation of § 181.722.

Under § 181.722, subd. 3, “the nature of an employment relationship is determined using the same tests and in the same manner as employee status is determined under the applicable workers’ compensation and unemployment insurance program laws and rules.” Subdivision 1(a)(3) bars a person from requiring or requesting an individual who is its employee “to enter into any agreement or complete any document that misclassifies, misrepresents, or treats the individual as an independent contractor or otherwise does not reflect that the individual is the person’s employee pursuant to subdivision 3.” Subdivision 4(a)(2) allows “a penalty of up to $10,000 for each individual the person failed to classify, represent, or treat as an employee pursuant to subdivision 3.”

Classification also decides which commission rules apply. Section 325E.37 excludes a person who “is an employee of the principal” (subd. 1(d)(1)). Section 181.145 covers only a salesperson who is not covered by § 181.13 and § 181.14 “because the person is an independent contractor.” An employee rep falls under the employee final-pay statutes instead. When an employer discharges an employee, “the wages or commissions actually earned and unpaid at the time of the discharge are immediately due and payable upon demand of the employee” (§ 181.13(a)). The same paragraph provides: “If the employee’s earned wages and commissions are not paid within 24 hours after demand, whether the employment was by the day, hour, week, month, or piece or by commissions, the employer is in default” (§ 181.13(a)). The demand has a form requirement: “An employee’s demand for payment under this section must be in writing but need not state the precise amount of unpaid wages or commissions” (§ 181.13(a)). When an employee resigns, commissions “shall be paid in full not later than the first regularly scheduled payday following the employee’s final day of employment, unless an employee is subject to a collective bargaining agreement with a different provision,” though “If the first regularly scheduled payday is less than five calendar days following the employee’s final day of employment, full payment may be delayed until the second regularly scheduled payday but shall not exceed a total of 20 calendar days following the employee’s final day of employment” (§ 181.14, subd. 1(a)). Under § 181.722, whether a rep is an independent contractor or employee is determined using the same tests as those workers’ compensation and unemployment laws, so the agreement should match how the relationship actually runs.

For unemployment insurance, Minnesota’s definition of “employment” also covers service performed by “an individual who is an employee under the Federal Insurance Contributions Act, United States Code, title 26, chapter 21, sections 3121(d)(3)(A) and 3121(d)(3)(D)” (Minn. Stat. § 268.035, subd. 15(a)(4)). Section 3121(d)(3)(D) reaches an individual working “as a traveling or city salesman, other than as an agent-driver or commission-driver, engaged upon a full-time basis in the solicitation on behalf of, and the transmission to, his principal (except for side-line sales activities on behalf of some other person) of orders from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments for merchandise for resale or supplies for use in their business operations,” when the contract contemplates that the individual performs substantially all the services personally (26 U.S.C. § 3121(d)(3)). It excludes an individual who “has a substantial investment in facilities used in connection with the performance of such services (other than in facilities for transportation).” It also excludes services “in the nature of a single transaction not part of a continuing relationship.” A full-time individual rep selling one principal’s line can therefore be in “employment” for unemployment insurance under clause (4) even if the rep is not a common-law employee under clause (1).

How Should a Principal and a Rep Agency Each Approach the Draft?

A principal should draft to the statute rather than around it, putting its effort into the terms the statute leaves open: performance standards, house accounts, the commission base, and payment timing. A rep agency should confirm the facts that bring it under the statute and negotiate the commission base and what is paid after the end.

In one engagement for a principal, I returned a draft rep agreement to my client with my changes tracked, margin notes explaining each change, and a letter explaining what I changed and why.

For the principal, I suggest:

• Writing performance standards into the agreement, because good cause is a material breach of one or more provisions of a written agreement. Even then, a principal may not terminate unless it gives the required written notice at least 90 days ahead and the rep fails to cure within 60 days. Notice for one of the six grounds listed in subdivision 1(b), such as insolvency, “is effective immediately upon receipt.”
• Choosing a fixed term with a renewal date if predictable exits matter, because an open-ended agreement takes 180 days’ written notice to end without cause.
• Listing house accounts and any baseline before signing, because the post-termination rule follows the agreement’s commission terms.
• Leaving out another state’s law, venue, and any waiver of § 325E.37, because subdivision 7 voids them (§ 325E.37, subd. 7(a)(3) reaches “a waiver of any provision of this section”).

For the rep agency, I suggest:

• Making sure the territory clause names any Minnesota territory, because a territory that includes part or all of Minnesota satisfies the statute’s scope condition for a rep that otherwise qualifies as a sales representative.
• Negotiating the commission base and the earning event, because subdivision 4 protects only commissions the agreement itself would have paid.
• Checking the assignment and change-of-ownership clause before any plan to sell the agency. Rep agreements typically give the principal a right to terminate, or at least to consent, when the agency is sold or its ownership transfers. For a covered rep, § 325E.37, subd. 2(a) still provides that a principal “may not terminate a sales representative agreement unless the person has good cause and” gives written notice of the reasons at least 90 days ahead. The rep must then fail to correct those reasons within 60 days of receipt of the notice. Notice for one of the six grounds listed in subdivision 1(b), such as insolvency, “is effective immediately upon receipt” (subd. 2(b)). Under subdivision 3, a principal may also decline to renew a fixed-term agreement on “written notice of the intention not to renew at least 90 days in advance of the expiration of the agreement.” As the Minnesota Court of Appeals read subdivision 3 in Midwest Sports, a principal may end an agreement of indefinite duration “without cause, by giving 180 days’ written notice.” These notice rules matter when buying or selling a manufacturers’ rep agency. The page on termination on an ownership change covers those clauses.

Before a principal sends a termination notice, a direct conversation with the agency owner about performance can produce a corrected plan or an agreed exit, which can cost both sides less than arbitration. An agency that sees a principal’s sales falling can propose a revised territory or rate before the principal decides to end the line.

What Should You Take From This Before Signing?

A manufacturer representative agreement in Minnesota is a negotiated contract with a statutory floor. The commission clause defines what the statute protects after termination, the territory clause can bring the statute in, and the termination, governing-law, venue, and waiver terms must meet § 325E.37 for a covered rep. A noncompete with an individual rep is void for agreements entered into on or after July 1, 2023.

If you are drafting or renegotiating a rep agreement and want to know which of its terms Minnesota law will enforce, email [email protected] with a brief description. I can then start an intake and conflict check before you send any confidential documents. More on my Minnesota contract law work is on the practice page.