MN Independent Sales Rep Commissions After Termination

What commissions does a Minnesota principal owe an independent rep after the relationship ends?

A principal owes commissions earned through the rep’s last day under § 181.145. For a rep who solicits wholesale orders of goods, § 325E.37 adds payment for all sales on which the agreement would have paid a commission. Those are sales made before the termination date or the end of the notice period, whichever is later, whether or not the goods have shipped.

The two statutes measure differently. Section 181.145, subd. 1, 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.” Section 325E.37, subd. 4, entitles a covered 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.”

Neither statute sets a commission rate or decides which accounts pay commission. Subdivision 4 measures the rep’s entitlement by “the provisions of the sales representative agreement,” so the agreement’s definitions of earned commissions, house accounts, and post-termination payments decide which sales pay a commission.

Which sales reps do Minnesota’s commission statutes cover?

Section 181.145 reaches a principal “employing a commission salesperson in this state” and covers any person paid commissions for sales who is an independent contractor rather than an employee, whether the rep sells goods or services. Section 325E.37 covers only reps who contract with a principal to solicit wholesale orders of goods and are paid at least partly by commission.

Section 181.145. Subdivision 1 defines a “commission salesperson” 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.” In McClure v. Davis Engineering, L.L.C., 716 N.W.2d 354 (Minn. Ct. App. 2006), the court held that “person” in that definition includes a corporation, so a rep agency organized as a corporation can use the statute. In Midwest Sports Marketing, Inc. v. Hillerich & Bradsby of Canada, Ltd., 552 N.W.2d 254 (Minn. Ct. App. 1996), in a discrimination claim that borrowed the § 181.145 definition, the court said “Implicit throughout the statute is the notion that the salesperson is paid by the principal on the basis of commissions.” Individuals paid by the agency, not the manufacturer, were not the manufacturer’s commission salespersons.

Section 325E.37. Subdivision 1 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.” “Wholesale orders” means “the solicitation of orders for goods by persons in the distribution chain for ultimate sale at retail, and also includes material, component, or part orders for use or incorporation into a product, and later resold.” The definition 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.”

Under subdivision 6, 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.” In Dachtera v. Whitehouse, 609 N.W.2d 248 (Minn. Ct. App. 2000), the court held that the section “applies to agreements between a sales representative and a principal, not to agreements between two sales representatives,” so an agency’s subagent cannot use it against the agency.

Employees are different. Whether your rep is an independent contractor or an employee decides which set of rules applies. A sales rep who is an employee falls under Minn. Stat. § 181.13 and Minn. Stat. § 181.14, and the commission rights of employee sales reps are covered separately. Under § 181.13, commissions earned and unpaid at discharge “are immediately due and payable upon demand of the employee.” Under § 181.14, subd. 1, a resigning employee’s earned commissions are due “not later than the first regularly scheduled payday following the employee’s final day of employment.” Section 181.13 and § 181.14, subd. 2, each provide that “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.”

How does the notice period extend the commissions a terminated rep earns?

For a rep covered by § 325E.37, commissions run through the end of the notice period, not just the date the principal decides to end the relationship. A principal that gives the required notice still owes commissions on sales made during the notice months.

Subdivision 2 says a manufacturer, wholesaler, assembler, or importer “may not terminate a sales representative agreement unless the person has good cause and” two 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.” The rep must then fail to correct the stated reasons within 60 days of receiving the notice. “Good cause” is a material breach of a written agreement or, without one, a failure to substantially comply with the principal’s material and reasonable requirements. A notice “is effective immediately upon receipt” when the grounds are one of six listed in subdivision 1, paragraph (b). Those grounds include bankruptcy or insolvency, abandonment of the business, and “failure to forward customer payments to the manufacturer, wholesaler, assembler, or importer.”

Subdivision 3 covers ending without cause. A principal may not fail to renew unless the rep “has been given written notice of the intention not to renew at least 90 days in advance of the expiration of the agreement.” Subdivision 3 also 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.” In Midwest Sports, the court read that sentence to mean “subdivision 3 permits a principal to end a sales representative agreement of indefinite duration, without cause, by giving 180 days’ written notice.”

Because subdivision 4 counts sales made before “the end of the notification period,” a principal ending an open-ended agreement should budget for commissions on the sales the rep makes during those 180 days. The notice rules themselves are covered in the Minnesota Termination of Sales Representatives Act guide.

What are the rules for orders placed before the end date but shipped after?

For a rep covered by § 325E.37, a sale made before the cutoff earns its commission “regardless of whether the goods have been actually shipped.” For other independent reps, § 181.145 does not impair the rep from collecting commissions the agreement provides on merchandise ordered before the last day and delivered and accepted afterward. Its late-payment penalty does not reach those orders.

Section 181.145, subd. 5, says: “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.” The next sentence limits the remedy: “However, the penalties prescribed in subdivision 3 apply only with respect to the payment of commissions earned through the last day of employment.” So the statute’s fast timing and penalty reach only orders delivered and accepted by the last day; orders still in the pipeline are collected under the agreement.

Section 325E.37 uses a different trigger. It pays on sales “made” before the cutoff. Subdivision 1 defines several terms but not when a sale is “made.” Your agreement should say whether a sale is made when the customer issues a purchase order, when the principal accepts it, or at some other point. That one definition can decide who is paid on a large order that was negotiated before the end date and booked after it.

When must final commissions be paid, and what is the late-payment penalty?

Under § 181.145, the principal must pay commissions earned through the last day on demand within three working days after the rep’s last day of work. That deadline applies when the principal ends the relationship or the rep resigns giving at least five days’ written notice. When the rep resigns without that notice, the principal has six working days. Late payment adds a daily penalty for up to 15 days.

The schedule in subdivision 2:

1. Principal ends it, or rep resigns with notice. “If the employer terminates the salesperson or if the salesperson resigns giving at least five days’ written notice, the employer shall pay the salesperson’s commissions earned through the last day of employment on demand no later than three working days after the salesperson’s last day of work.”
2. Rep resigns without notice. Payment is due “on demand no later than six working days after the salesperson’s last day of work.”
3. Rep handled money or property. If the rep was “entrusted with the collection, disbursement, or handling of money or property,” the principal “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.”

The penalty in subdivision 3 is “a penalty for each day, not exceeding 15 days, which the employer is late,” and “The daily penalty shall be in an amount equal to 1/15 of the salesperson’s commissions earned through the last day of employment which are still unpaid at the time that the penalty will be assessed.” Fifteen days at 1/15 per day adds up to the full unpaid amount. Under subdivision 4, paying “the amount it in good faith believes is owed” within the payment period avoids the penalty, unless a later adjudication finds the rep earned more. If the dispute is adjudicated and the rep was not promptly paid, “the employer shall pay reasonable attorney’s fees incurred by the salesperson.”

For a rep covered by § 325E.37, subdivision 4 says 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.” An agreement that sets its own payment dates therefore controls timing for those reps. The rules for employees on when commissions are earned and paid are different.

How do house accounts, procuring cause, and post-termination clauses work?

The rep agreement decides which sales carry a commission: house accounts the principal keeps for itself, whether a commission is earned on order, shipment, or payment, and any tail period after the end. For a covered rep whose agreement was entered into, renewed, or amended on or after August 1, 2014, the agreement cannot waive subdivision 4’s cutoff. Outside a written term, a rep may argue procuring cause.

House accounts and earned terms. Because subdivision 4 pays only on sales “as to which the representative would have been entitled to commissions pursuant to the provisions of the sales representative agreement,” an account the agreement lists as a house account, or a commission the agreement says is earned only on payment, follows those terms. I suggest writing those terms into the agreement, because a house-account list kept in an email chain invites a dispute over whether the rep agreed to it. Clawing back commissions already paid raises its own problems.

Clauses that cut off commissions. Subdivision 7 applies to agreements entered into, renewed, or amended on or after August 1, 2014, under Laws 2014, chapter 165. It voids any term that “includes or purports to include” “a waiver of any provision of this section,” and “Any term or provision described in paragraph (a) is void and unenforceable.” For a covered rep, a clause denying commissions on pre-termination sales because the goods ship later conflicts with subdivision 4’s “regardless of whether the goods have been actually shipped.”

Procuring cause. Minnesota courts have applied the procuring-cause doctrine to real estate brokers. In Spring Co. v. Holle, 248 Minn. 51 (Minn. 1956), the Minnesota Supreme Court affirmed a judgment for a broker that was the procuring cause of a sale closed after its listing expired. The court described the test as evidence that the agent “originated a course of events which without a break in their continuity created a cause of which the sale was the result. It is not enough that his services merely contributed to the result.” For a commissioned sales rep, the Court of Appeals in Guercio v. Production Automation Corp., 664 N.W.2d 379 (Minn. Ct. App. 2003) did not decide “whether the doctrine of procuring cause is applicable here” when it sent an employee rep’s post-termination commission claim to trial. A written tail clause, stating how long and on which accounts commissions continue after the end, answers the question the doctrine leaves for a court.

How does a rep’s resignation change the commissions owed?

A resigning independent rep keeps the § 181.145 right to commissions earned through the last day. They are payable on demand within three working days if the rep gives at least five days’ written notice of resignation, or within six working days without it. What the rep receives on later orders depends on the agreement.

Section 181.145, subd. 2, applies both when the principal “terminates the salesperson” and “when the salesperson resigns that position.” The five-days’-notice split in the payment schedule is the only difference the statute draws between a resignation and a termination.

Section 325E.37 is written mainly around the principal’s decision. Subdivision 2’s good-cause and notice limits begin “A manufacturer, wholesaler, assembler, or importer may not terminate,” and subdivision 4 speaks of an agreement that “is terminated” without naming who ends it. A rep planning to resign a line, and a principal receiving the resignation, should read the agreement’s resignation, notice, and tail terms first. Those terms govern payment on orders that arrive after the last day, subject to § 325E.37’s notice-period rule for a covered rep.

What can an unpaid rep recover, and where does the claim go?

An unpaid independent rep can sue under § 181.145 for the commissions, the penalty, and attorney’s fees. A rep covered by § 325E.37 can arbitrate, where the arbitrator may award commissions under subdivision 4, damages or reinstatement, and fees, or can sue in court before the arbitration hearing. Arbitration is the sole remedy for a principal alleging a violation of the section, but if the rep sues, the claims of all parties are resolved in court.

Under Minn. Stat. § 181.171, subd. 1, “A person may bring a civil action seeking redress for violations of” listed sections, including 181.145, “directly to district court.” Subdivision 3 says “the court shall order an employer who is found to have committed a violation to pay to the aggrieved party reasonable costs, disbursements, witness fees, and attorney fees.” In McClure, the court held that a claim for penalties and attorney fees under section 181.145 is governed by a statute of limitations. It remanded for the trial court to decide whether and when the relationship was terminated for that claim.

Section 325E.37, subd. 5, sets the forum. “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 or, “at the sales representative’s option prior to the arbitration hearing,” sue in court, “and in that event the claims of all parties must be resolved in that forum.” The statute supplies its own procedure for choosing an arbitrator: “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.” On cost, subdivision 5 says “The cost of an arbitration hearing must be borne equally by both parties unless the arbitrator determines a more equitable distribution.” The arbitrator may award, among other remedies:

1. “reinstatement of the sales representative agreement, or damages”
2. “payment of commissions due under subdivision 4”
3. “reasonable attorneys’ fees and costs to a prevailing sales representative”
4. “reasonable attorneys’ fees and costs to a prevailing manufacturer, wholesaler, assembler, or importer, if the arbitrator finds the complaint was frivolous, unreasonable, or without foundation”

Subdivision 6 adds a timing rule for the arbitration route: “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 text of the statute before relying on that sentence. A contract arbitration clause raises its own questions, covered in Minnesota arbitration clause rules.

In my practice, I have regularly represented commissioned salespeople after a termination, and the principal on the other side often did not know the Termination of Sales Representatives Act existed. I see pretty regularly that it takes litigation to get the manufacturer to actually pay out, and a principal that refuses to pay a covered rep risks paying the rep’s attorney’s fees on top of the commissions.

How should a principal and a rep agency draft and price the exit?

Both sides should settle the exit terms in the agreement before the relationship ends, because neither statute sets a commission rate or decides which accounts pay commission. Those terms are when a commission is earned, which accounts are house accounts, how long commissions continue after the end, and when the last check is due. A principal should price the notice period and tail as a cost of ending the line, and an agency should price them as part of the value of its book.

Terms worth writing down:

1. When a commission is earned and when a sale is made. These two definitions decide which pipeline orders carry a commission under § 181.145, subd. 1 and 5, and § 325E.37, subd. 4.
2. House accounts by name. I suggest listing them in the agreement or a signed schedule, because a list the rep signed shows the rep agreed to it.
3. The tail. The agreement should state how long commissions continue on orders from the rep’s accounts after the end, and whether the tail differs for a resignation.
4. Payment dates. For a covered rep, the agreement’s payment terms control under § 325E.37, subd. 4; without them, § 181.145 applies.
5. Governing law and venue. For a covered rep, subdivision 7 voids “an application or choice of law of any other state” in agreements entered into, renewed, or amended on or after August 1, 2014. Under Laws 2022, chapter 51, it also voids “a choice of venue in any other state” in agreements entered into, renewed, or amended after August 1, 2022. 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 found significant that the statute did not contain a provision limiting choice-of-law clauses. It also found significant that the parties agreed to North Carolina law with no evidence it was selected in bad faith. The court noted the agreement was drafted before the statute’s August 1, 1990, effective date. Subdivision 7 was added later. The general rules on choice-of-law clauses apply to reps outside § 325E.37.

Restrictions after the end. Minn. Stat. § 181.988, subd. 2, says “Any covenant not to compete contained in a contract or agreement is void and unenforceable,” and subdivision 1 defines the protected “employee” as “any individual who performs services for an employer, including independent contractors.” It also reaches an entity the principal requires the individual to form. The statute applies to agreements entered into on or after July 1, 2023, under Laws 2023, chapter 53, article 6. A nondisclosure agreement, an agreement designed to protect trade secrets or confidential information, a nonsolicitation agreement, or an agreement restricting use of customer or contact lists is outside the definition. Subdivision 2 keeps an exception for the sale of a business. A temporary and geographically restricted covenant agreed upon in that sale, prohibiting the seller from carrying on a similar business within a reasonable geographic area and for a reasonable length of time, remains valid and enforceable. That exception matters to a buyer of a rep agency. Subdivision 3 bars requiring an individual who primarily resides and works in Minnesota, as a condition of employment, to accept another state’s law or forum for claims under § 181.988. For other individuals, a valid choice-of-law clause may send the covenant question to another state’s law.

Changing terms midstream. In Guercio, an employee signed, after he was hired, a document that combined a noncompete with the line “I will receive no commissions for amounts received by PAC after the termination of my employment.” The court held the two terms could not be separated on that record and sent the claim to trial on whether the document was supported by independent consideration. Because a cutoff added midstream can turn on that question, a principal adding one to an existing relationship should give the rep something for it and say so in the document.

Pricing. For a principal, the cost of ending a covered rep is at least the commissions on sales made through the end of the notice period, plus any tail the agreement grants. For an agency, the same terms set what its book is worth to a buyer, which matters when buying or selling a sales rep agency. The manufacturer representative agreement is where both sides set these numbers, and the general rules for its other terms are covered under Minnesota contract law.

What are the three questions in a rep commission dispute?

Commissions after a sales rep relationship ends come down to three questions: which statute covers the rep, what cutoff and payment date apply, and what the agreement says about pipeline orders, house accounts, and the tail. Section 181.145 sets a fast payment schedule and penalty for an independent commission salesperson employed in this state. Section 325E.37 adds the notice-period cutoff, a no-waiver rule, and a choice of forum for reps who solicit wholesale orders of goods.

For a planned rep termination, a resignation, or a commission demand, I can analyze the rep agreement and the open orders and tell you what each statute and the contract require you to pay or entitle you to collect. Email aaron@aaronhall.com with a brief description of the situation.