Minnesota Termination of Sales Representatives Act

What does the Minnesota Termination of Sales Representatives Act require?

The Act requires a principal that ends a covered rep agreement to follow one of two paths. With cause, the principal needs “good cause” and written notice stating the reasons at least 90 days ahead. Unless one of six listed grounds applies, the termination also needs a rep who fails to fix the problem during a 60-day cure period that starts on receipt of the notice. Without cause, the principal gives written notice of nonrenewal.

Under Minn. Stat. § 325E.37, subd. 2, a manufacturer, wholesaler, assembler, or importer “may not terminate a sales representative agreement unless the person has good cause” and gives written notice “setting forth the reason(s) for the termination at least 90 days in advance of termination,” and the rep then “fails to correct the reasons stated for termination in the notice within 60 days of receipt of the notice.” Under subdivision 1(b), “good cause” means a material breach of a written rep agreement or, without one, of material and reasonable requirements. It “includes, but is not limited to” six listed grounds. Subdivision 2(b) makes a notice on one of those six grounds “effective immediately upon receipt,” as the next sections explain.

The second path is subdivision 3: a principal that does not want to renew must give written notice “at least 90 days in advance of the expiration of the agreement,” and an agreement with no end date is treated as expiring “180 days after the giving of written notice” of intention not to continue it. On any path, subdivision 4 pays the rep on sales made before the later of the termination date or the end of the notice period.

Which sales representatives does the Act cover?

The Act covers a person who “contracts with a principal to solicit wholesale orders and who is compensated, in whole or in part, by commission,” and who lives in Minnesota, is based in Minnesota, or has Minnesota in its territory. Employees, buy-and-resell distributors, consignment holders, and reps who sell at retail to end users are excluded.

Minn. Stat. § 325E.37, subd. 1 sets the coverage rules:

• The rep. A “sales representative” is defined by that solicit-on-commission test. A “person” includes “a natural person” and “a partnership, corporation, and all other entities,” so a rep agency counts.
• The exclusions. The definition leaves out a person who “is an employee of the principal,” who “places orders or purchases for the person’s own account for resale,” who “holds the goods on a consignment basis for the principal’s account for resale,” or who “distributes, sells, or offers the goods, other than samples, to end users, at retail.”
• The agreement. A covered agreement may be “express or implied, whether oral or written, for a definite or indefinite period,” and it concerns a manufacturer’s, wholesaler’s, assembler’s, or importer’s goods. The definition speaks only of goods. It also requires that the rep sell those goods “by use of the latter’s trade name, trademark, service mark, logotype, advertising, or other commercial symbol or related characteristics,” in an agreement “in which there exists a community of interest between the parties in the marketing of the goods at wholesale.”
• The orders. “Wholesale orders” reach goods sold “for ultimate sale at retail” and “material, component, or part orders for use or incorporation into a product, and later resold,” so a rep selling parts for another company’s product can qualify.

Subdivision 6 adds the Minnesota link. The Act applies to a rep who, “during some part of the period of the sales representative 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.” The principal’s own location is not part of the test.

Two Minnesota Court of Appeals decisions mark the edges. In Midwest Sports Marketing, Inc. v. Hillerich & Bradsby of Canada, Ltd., 552 N.W.2d 254 (Minn. Ct. App. 1996), the court asked “whether the person claiming to be a sales representative was a sales representative when the principal terminated the sales representative agreement,” and individuals who contracted only with a rep agency were not the manufacturer’s sales representatives. In Dachtera v. Whitehouse, 609 N.W.2d 248 (Minn. Ct. App. 2000), the court held the Act “applies to agreements between a sales representative and a principal, not to agreements between two sales representatives.” Whether a rep is really an independent contractor or employee is a separate question with separate rules, and employee reps have their own commission rights.

How does a manufacturer terminate a sales rep for good cause?

Outside the six grounds that take effect on receipt, a manufacturer terminates for good cause by identifying a material breach and sending written notice that states the reasons at least 90 days before the termination date. The rep then has a 60-day cure window. If the rep corrects the stated reasons during the 60-day cure period, which runs from receipt of the notice, the termination on those reasons cannot proceed.

“Good cause,” under Minn. Stat. § 325E.37, subd. 1(b), means “a material breach of one or more provisions of a written sales representative agreement.” Without a written agreement, it means “failure by the sales representative to substantially comply with the material and reasonable requirements imposed by the manufacturer, wholesaler, assembler, or importer.” The same subdivision adds that “Good cause includes, but is not limited to” six listed grounds, covered in the next section. That definition rewards a written agreement: performance requirements spelled out in the contract are what turn a rep’s shortfall into a breach you can name in a notice. Good cause alone does not end the agreement. Unless a listed ground applies, the Act also requires written notice at least 90 days ahead and a rep who fails to cure during the 60-day cure period.

The notice steps come from subdivision 2(a):

1. The breach should be tied to the agreement’s provisions or, without a written agreement, to requirements that are “material and reasonable.”
2. The principal must give “written notice setting forth the reason(s) for the termination at least 90 days in advance of termination.”
3. The termination can proceed only if the rep “fails to correct the reasons stated for termination in the notice within 60 days of receipt of the notice.”

The notice should name every reason you rely on, because the cure test runs against “the reasons stated.” A termination that skips these steps can also raise a claim of bad-faith contract termination under the agreement itself.

When can a termination take effect immediately?

A termination notice takes effect on receipt when the ground is one of six listed in the statute. The first three are the rep’s bankruptcy or insolvency, an assignment for the benefit of creditors, and voluntary abandonment of the business. The other three are a conviction or plea relating to the business, an act that materially impairs the principal’s trademark goodwill, and failure to forward customer payments.

Minn. Stat. § 325E.37, subd. 2(b) provides that “A notice of termination is effective immediately upon receipt where the alleged grounds for termination are the reasons set forth in subdivision 1, paragraph (b), clauses (1) to (6), hereof.” For these grounds, the requirement of written notice at least 90 days ahead and the 60-day cure period fall away. The six grounds, listed in subdivision 1(b), are:

1. “the bankruptcy or insolvency of the sales representative”;
2. assignment for the benefit of creditors or a similar disposition of the rep’s business assets;
3. “the voluntary abandonment of the business by the sales representative as determined by a totality of the circumstances”;
4. conviction, or a plea of guilty or no contest, on a charge of violating a law relating to the rep’s business;
5. an act that materially impairs the goodwill of the principal’s trademark, trade name, service mark, logotype, or other commercial symbol; or
6. “failure to forward customer payments to the manufacturer, wholesaler, assembler, or importer.”

On the immediate path, a notice of termination is “effective immediately upon receipt,” with no advance period and no cure window. Abandonment is judged “by a totality of the circumstances,” so a rep that has slowed down is not the same as a rep that has quit; the record you keep is what shows the difference.

How does ending a rep agreement without cause work?

A principal may end a covered rep relationship without cause by not renewing it. Minnesota requires written notice of nonrenewal at least 90 days before the agreement expires. An agreement with no fixed term is treated as expiring 180 days after written notice that the principal will not continue it.

Minn. Stat. § 325E.37, subd. 3 states that, “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.” For agreements with no end date, it adds 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.”

The Minnesota Court of Appeals read that sentence as a without-cause exit. In Midwest Sports, the court held “subdivision 3 permits a principal to end a sales representative agreement of indefinite duration, without cause, by giving 180 days’ written notice,” even though the contract itself allowed 90 days’ notice. In practice, a handshake rep arrangement with no end date, or a written one with no expiration date, takes 180 days of notice to end without cause. A contract clause letting either side walk away on short notice raises the questions covered under unilateral termination clauses, and for a covered rep the statute’s notice periods set the floor.

What does a termination that skips the Act’s steps cost?

Any termination of a covered rep agreement leaves commissions owed under the agreement’s terms on sales made through the later of the termination date or the end of the notice period. That holds whether or not the goods have shipped. For a termination that skips the Act’s steps, the statute also lets the arbitrator award damages, reinstate the agreement, and award a prevailing rep its attorney’s fees.

Minn. Stat. § 325E.37, subd. 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.” Payment follows the agreement’s terms or, if the agreement is silent, Minn. Stat. § 181.145, subd. 2, which requires the principal to “promptly pay the salesperson, at the usual place of payment, commissions earned through the last day of employment.” The timing, penalty, and dispute rules are covered under commissions owed to an independent rep after termination.

Subdivision 5(b) lists what the arbitrator may award:

• “sustainment of the termination of the sales representative agreement”;
• “reinstatement of the sales representative agreement, or damages”;
• “payment of commissions due under subdivision 4”;
• “reasonable attorneys’ fees and costs to a prevailing sales representative”;
• fees and costs to a prevailing principal only “if the arbitrator finds the complaint was frivolous, unreasonable, or without foundation”; and
• the arbitrator’s full fees and expenses against a side whose resort to arbitration, or defense in it, was vexatious and lacking in good faith.

The open question for a principal is how far “damages” reaches. In Wingert & Associates, Inc. v. Paramount Apparel International, Inc., 458 F.3d 740 (8th Cir. 2006), a federal appeals court applied Minnesota law to a rep agency for an apparel manufacturer. The agency’s oral agreement had no stated length and was terminated on a few days’ notice. The court held “a representative terminated without 180 days notice is entitled to commissions earned within 180 days of the termination,” at the full contract rate. It affirmed an $821,518 award of lost profits beyond the notice period, reasoning that subdivision 5 “does not limit the period for which such damages may be awarded.” One judge dissented on that point, writing “I find no support in the statute for the interpretation that the failure to provide 180 days’ notice subjects the company to potentially limitless liability in the form of future lost profits.” Minnesota state courts are not bound by Wingert, but a rep may cite it against a principal that skipped the notice.

How are disputes under the Act resolved?

The principal’s only forum for a claim under the Act is arbitration. The rep may arbitrate or, before the arbitration hearing, sue in court, and if the rep picks court, every party’s claims are resolved there. An arbitration award is final and binding, and a district court confirms it on request.

Minn. Stat. § 325E.37, subd. 5(a) sets the forum rules:

• “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 also submit a matter to arbitration, or in the alternative, 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, and in that event the claims of all parties must be resolved in that forum.”
• “In the event the parties do not agree to an arbitrator within 30 days after the sales representative demands arbitration in writing, either party may request the appointment of an arbitrator from the American Arbitration Association.”
• “The cost of an arbitration hearing must be borne equally by both parties unless the arbitrator determines a more equitable distribution.”

Under subdivision 5(c), “The decision of any arbitration hearing under this subdivision is final and binding on the sales representative and the manufacturer, wholesaler, assembler, or importer.”

The rep’s arbitration demand has its own deadline. Subdivision 6(b) provides: “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.” Check the current statute text before relying on that period, and note that it speaks only to an arbitration demand under subdivision 5.

When do out-of-state law, venue, and waiver clauses fail?

For a rep agreement entered into, renewed, or amended on or after August 1, 2014, Minnesota voids any term that applies another state’s law or waives any part of the Act. For an agreement entered into, renewed, or amended after August 1, 2022, it also voids a term choosing a venue in another state.

Minn. Stat. § 325E.37, subd. 7 bars a principal from trying to “circumvent compliance with this section by including in a sales representative agreement a term or provision, whether express or implied, that includes or purports to include”:

1. “an application or choice of law of any other state”;
2. “a choice of venue in any other state”; or
3. “a waiver of any provision of this section.”

“Any term or provision described in paragraph (a) is void and unenforceable.” The dates come from the session laws. Laws 2014, chapter 165, “applies to sales representative agreements entered into, renewed, or amended on or after that date,” August 1, 2014. Laws 2022, chapter 51, which added the venue clause, applies to agreements “entered into, renewed, or amended after that date,” August 1, 2022. A renewal or amendment brings an older agreement under the newer rule.

Older agreements are different. In Hagstrom v. American Circuit Breaker Corp., 518 N.W.2d 46 (Minn. Ct. App. 1994), the court enforced a North Carolina choice-of-law clause against a Minnesota rep. It noted that the Act “does not contain a similar provision restricting choice of law provisions.” It also found no evidence that North Carolina law “was selected in bad faith,” and it noted that the agreement “was drafted before the August 1, 1990 effective date” of the Act. Subdivision 7 now restricts those clauses for agreements within the 2014 effective-date language. For an older agreement never renewed or amended, Hagstrom shows how a court weighed a choice-of-law clause on those facts. A rep agreement for plumbing equipment or supplies has its own anti-waiver rule in subdivision 6(c). The general rules for these terms are covered under choice-of-law clauses in Minnesota contracts.

A signed arbitration clause is the unsettled piece. In A.J. Lights, LLC v. Synergy Design Group, Inc., 690 N.W.2d 567 (Minn. Ct. App. 2005), the court held that the Act “does not preclude sales representatives from entering into binding arbitration agreements, thereby waiving their right to pursue their claims in a court of law,” in a decision that came before subdivision 7 existed. Subdivision 7 now voids “a waiver of any provision of this section,” and the federal arbitration statute, 9 U.S.C. § 2, makes a written arbitration provision in “a contract evidencing a transaction involving commerce” “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” My legal research did not identify a Minnesota appellate decision applying subdivision 7 to a signed arbitration clause. A principal relying on one to keep a rep out of court may face that argument. The broader rules are covered under enforceability of Minnesota arbitration clauses.

How should a manufacturer plan the exit from a rep relationship?

A manufacturer should plan a rep exit by confirming the Act applies, choosing the lawful path before sending anything, and budgeting commissions through the end of the notice period. A good-cause notice must state its reasons, and subdivision 4 pays commissions under the agreement’s terms.

Working from Minn. Stat. § 325E.37, the sequence is:

1. Coverage. I suggest checking the rep against the four exclusions in subdivision 1(d) as of the planned termination date, because Midwest Sports measured coverage at termination. The Minnesota link in subdivision 6 asks about the rep “during some part of the period of the sales representative agreement.”
2. The agreement’s date. An agreement entered into, renewed, or amended on or after August 1, 2014, carries subdivision 7’s bar on out-of-state law and waivers; one after August 1, 2022, also bars an out-of-state venue clause.
3. The path. The statute allows four: good cause with a 90-day notice and 60-day cure; a listed ground with notice effective on receipt; nonrenewal with 90 days’ notice before expiration; or 180 days’ notice for an agreement with no end date.
4. The notice. The notice must be in writing, and a cause notice should state every reason you rely on. I suggest keeping proof of when the rep received it, because the cure window runs from receipt.
5. The commissions. Subdivision 4 pays on sales made through the later of the termination date or the end of the notice period, regardless of shipment, at the agreement’s rates.

The same terms that govern an exit should be settled when the relationship starts, in the manufacturer representative agreement. They include written performance requirements that make good cause provable, a defined term, and a commission schedule that says when a sale is made. For a rep agency, those terms also set what its book is worth when buying or selling a sales rep agency.

What should a principal take from the Act?

Under the Act, ending a rep relationship turns on which notice applies. Good cause requires a 90-day notice with a 60-day cure, and six listed grounds take effect on receipt. Without cause, the notice is 90 days before expiration, or 180 days for an open-ended agreement. Commissions run through the later of termination or the end of that notice. In Midwest Sports, the 180-day period applied to a 1985 agreement whose contract allowed 90 days’ notice. For an agreement entered into, renewed, or amended on or after August 1, 2014, subdivision 7 also voids any term that waives a provision of the section.

If you are planning to end a rep relationship, or a rep has challenged one you already ended, I can analyze the agreement, the notice, and the open orders. I can then tell you what Minnesota contract law and the Act require. Email aaron@aaronhall.com with a brief description of the situation.