MANA Referral Counsel Report

Authors: Gerry Newman, Dan Beederman, and Adam Glazer of Schoenberg, Fisher, Newman & Rosenberg, Ltd., Chicago, Illinois.

Case Overview

An unlikely settlement was recently achieved for five sales representatives facing termination. Their long-time principal was acquired by a company with a direct sales force. The product in question, a revolutionary sugar substitute, had been developed over the last five years and was nearing market maturity.

Background

The Michigan-based sales rep firm, Mich-sugah, had invested heavily in promoting this new sweetener across a six-state territory. Despite personal and financial sacrifices, the firm was on the brink of reaping significant benefits from their intensive marketing efforts.

Conflict Arises

As rumors of termination began circulating due to the acquisition of their principal by SweetTalkers, SE, a European conglomerate, the Mich-sugah team faced a critical challenge. With no written contract in place—only verbal promises and some email assurances—the reps were vulnerable.

Legal Action

The reps, led by Irv, Mich-sugah’s president, sought legal counsel from Rex, a seasoned rep lawyer. Rex was shocked by the lack of a written contract but was determined to leverage the oral agreements and the significant sales achievements of the reps.

Strategy and Negotiations

Rex drafted a demand letter to SweetTalkers, emphasizing the legal doctrines of "procuring cause" and "fraudulent inducement." He argued that despite the lack of a formal contract, the reps were entitled to commissions and proposed that SweetTalkers sign them to a five-year contract to avoid litigation.

Resolution

After intense negotiations, a compromise was reached. SweetTalkers agreed to offer multi-year contracts to three of the five reps and provided a substantial lump sum payment to all, representing two years' worth of post-termination commissions. This settlement allowed the reps to continue working in the industry without non-compete restrictions.

Conclusion

This case highlights the challenges faced by independent sales reps and underscores the importance of having formal contracts in place. The resolution not only provided compensation for the reps but also affirmed their rights and contributions to the product's success.

Editor’s Note: Due to a confidentiality agreement, pseudonyms and a different industry were used in this article.