A Sales Representative May Recover Damages for Violations Of The Independent Wholesale Sales Representatives Contractual Relations Act.

Does your company use independent contractors to sell your products in the wholesale market?  If so, your company must be aware of the Independent Wholesale Sales Representatives Contractual Relations Act of 1990. 

On June 24, 2010, for the first time, the Second District Court of Appeal of the State of California evaluated the “Independent Wholesale Sales Representatives Contractual Relations Act of 1990” (the Act).  The Act was designed to clarify the contractual requirements between manufacturers and their nonemployee sales representatives (independent contractors).  It applies primarily to independent sale representatives selling on behalf of wholesalers. 

 In Edwin Baker v. American Horticulture Supply, Inc., the Court held that the Act is designed to protect salespersons from both willful and nonwillful failures by companies to comply with the requirements set forth in the Act. 

A.        Written Contract.  The Act requires that the manufacturer and the sales representative enter into a written contract that includes the following: 

              1.  All details of the commission arrangement, including its rate and method of computation;

              2.  The time when the commission will be paid; and

              3.  The grounds for chargebacks, if any.  

B.        Signature and Acknowledgment.  Once the contract is signed, the representative must be provided with a signed copy of the written contract.  The representative must sign that he or she received the copy.

 C.        Commission Explanation.  When the business pays commission, the sales representative must be provided with details of the commission received, including the rate of commission on each order, the customer’s name and invoice number for which each payment is made, and information on any chargebacks. 

D.        Consequences.  The Act provides that any business covered by the Act who fails to pay commissions as provided in the written contract shall be liable to the sales representative in a civil action for compensatory damages or triple the damages proven at trial, depending on whether or not willfulness was found.  In addition, the prevailing party is entitled to recover reasonable attorneys’ fees and costs. 

If your business hires contractors to sell your products, this Act might apply to you.  We would encourage you to seek legal advice to ensure legal compliance, as the penalties for failing to comply may be significant.