Recent Changes to the Minnesota Termination of Sales Representatives Act Limit the Ability of Companies with Independent Sales Forces to Avoid the Act's Protections

New legislation enacted by the Minnesota State Legislature and signed by Governor Mark Dayton in April of this year will require manufacturers and other companies that sell their products through independent sales representatives to reexamine their sales representative agreements. The new law amends the Minnesota Termination of Sales Representatives Act ("MTSRA") as follows:

a) It prohibits manufacturers and other entities from including any term or provision that chooses the law of another state in a covered sales representative agreement; and

b) It prohibits companies from including terms in a covered sales representative agreement that waive any provision of the MTSRA. 

This legislation will go into effect August 1, 2014, and will apply to all new independent sales representative agreements and any prior agreements that are renewed or amended on or after the effective date. 

The Impact
Companies that violate the MTSRA can be held liable for commissions, lost profits, attorneys' fees, costs, and statutory penalties, so this change may have significant consequences for those—particularly non-Minnesota-based companies—that are caught unaware. Any provision in a sales representative agreement entered into on or after August 1 that purports to waive any part of the MTSRA, either explicitly or by selecting the law of another state, will be void and unenforceable.

Historical Background
The Minnesota Legislature originally enacted the MTSRA in 1990 to provide protection for independent (or non-employee) sales representatives who work, in whole or in part, on a commission basis. In many cases, the MTSRA restricts a company from terminating a sales representative agreement unless it has good cause, provides written notice of the reasons for the termination 90 days in advance, and allows the sales representative 60 days to correct the reasons that were given to justify the termination. The MTSRA also incorporates the Prompt Payment of Commissions statute, which levies penalties against the terminating company if it fails to make prompt payment of commissions to the sales representative. These protections apply to independent sales representatives who reside in Minnesota, have their primary place of business in Minnesota, or are responsible, under the terms of their agreement, for a territory that includes all or part of Minnesota.

In 1994, the Minnesota Court of Appeals held that parties to a sales representative agreement, who act in good faith without the intent to evade the law, could choose the law of a different state to govern their agreement. These choice-of-law provisions often chose the law of a state that did not offer protections similar to those provided by the MTSRA. 

Subsequently, in 2005, the Minnesota Court of Appeals was called upon to decide the related issue of whether a sales representative agreement could waive the representative's right to sue in court under the MTSRA. Once again, the court was convinced that, had the Minnesota Legislature wished to prevent parties from including waiver or choice-of-law provisions, it would have included a provision in the MTSRA preventing parties from doing so. Accordingly, the court held that this type of waiver provision was enforceable.

In an apparent response to this line of appellate decisions, the Minnesota Legislature amended the MTSRA to include just such a provision during the recently concluded 2014 legislative session.

What You Should Do 
Manufacturers and other companies that utilize independent sales representatives in Minnesota must ensure that they have a thorough understanding of the MTSRA and its requirements going forward. Alternatively, to the extent affected companies anticipate entering into new sales representative agreements or amending old agreements this year, and wish to opt out of the MTSRA either in whole or in part, they would be well advised to finalize their contracts before August 1 in order to avoid the effect of the newly enacted changes to the law, which are designed to protect sales representatives. Notice and termination requirements are strict, and because the statute incorporates the Prompt Payment of Commissions statute, penalties for failure to promptly pay commissions can begin to accrue in less than a week. Review your agreements with independent sales representatives for compliance with the change to the law.

We Can Help 
For more information on how the newly amended MTSRA may affect your business or related employment issues, please contact Maslon's Labor & Employment, Competitive Practices/Unfair Competition, or Employment Litigation Groups.