What Exactly is a Sales Agency Agreement?
A sales agency agreement is an agreement between a principal (the seller) and a sales agent (the buyer/seller). It governs the sale of goods, such as commodities, such as produce, fish, grain or meat. For example, the agreement may be between a grower and a wholesaler or a butcher and a supermarket.
The sales agent is authorized to sell to purchasers, on behalf of the principal, goods which the principal is offering for sale. The sales agent is not the principal’s employee or servant, but acts in similar fashion to a broker. It does not take possession of the goods being sold itself or have any servants or agents of its own.
A growing industry for sales agency agreements is the internet . These agreements are particularly found with foodstuffs or other products purchased via the web. Essentially, a seller will advertise their product on a website and have another under its employ to fulfill orders and deliver the goods. In circumstances such as this, the seller would cover the costs of marketing the product, whilst the sales agent would act independently and earn a commission on each sale made.
Like in a principal/contractor relationship, though, the sales agent might be given a certain level of control and responsibility to oversee the sale of goods and be remunerated accordingly. As a result, it may be subject to review by the Fair Work Ombudsman for compliance with the Fair Work Act 2009 (Cth) (FW Act) if it is paying any remuneration to its employees.
Vital Components of a Sales Agency Agreement
When drafting a sales agency agreement, a business owner needs to understand the fundamental aspects of the relationship with the sales agent. Generally speaking, the structure and intent of the principal-agent relationship is that the agent promotes sales for the principal. A licensed sales agent typically earns a percentage of the sales generated. This commission structure incentivizes sales agents to perform in order to receive their compensation. When drafting the agreement, both the principal and the agent should agree on the specific percent of commission as well as whether other compensation options will be available. For example, many sales agents are provided with an upfront signing bonus or a monthly retention fee. The sales agent agreement should specify when the agent will receive statement of accounts detailing the commissions due and the mode of payment to the agent, i.e., check, deposit, or another method.
The sales area or territory needs to be specified in the agreement. In the event that a customer makes an inquiry outside the designated territory, the sales agent agreement should specify whether credit for the sale of those items will be given to the agent. Typically, an agent may not approach prospective customers outside of his or her territory without the approval and involvement of the primary party. Next, the sales agent agreement should set forth the duration of the agreement. The principal may want to include a provision that allows the parties to terminate the agreement, with or without cause, on 30-days notice. Typically, the parties can terminate the agreement without penalty once the initial term expires. In most cases, the principal may need to pay the residual commission, i.e., the commission on the remaining orders.
There should be an obligation imposed on the sales agent to promote the principal’s products; however, the sales agent cannot be held liable if an order is lost because of factors beyond his or her control. The agreement should outline the general operations of the parties’ business relationship. For example, the parties may delineate how communications will occur between them on a regular basis. The principal may want to limit its liability by providing that the sales agent is not authorized to enter into any contracts on behalf of the principal, or that the sales agent will not be reimbursed for expenses.
Why Use a Sales Agency Agreement?
Utilizing a sales agency agreement can significantly benefit both the principal and the agent in a sales contract. An agreement should be entered into to set out the rights and obligations of the parties and the specific terms that will govern the sale of products or services. A sales agency agreement is particularly important in situations where the agents will be selling and/or servicing products. Using a written agreement will set out the specific obligations of the agent for a specific period of time. In the absence of an agreement, the obligation of the agent might not be clear. It also permits the principal to exercise control over the agent and the products they are advertising. These agreements will outline the specific nature of the obligations and how the relationship between the principal and agent will be carried out.
The principal will benefit from the use of a sales agency agreement because it allows them to have more direct control over the agent and the service they are providing. This is because of the extensive level of detail these agreements can provide. It can be beneficial to be able to identify exactly what the agent’s responsibilities are so everyone has an understanding of what needs to take place. It also allows the principal to avoid any potential disputes over how the agents should be conducting business or the specific actions they should be taking. It will allow them to outline their expectations so this does not become an issue.
The agent will benefit from the use of a sales agency agreement because it allows them to understand exactly what is expected of them. They will benefit from having the information set forth upfront in writing rather than in the moment when it may be more difficult to handle or discuss. This also allows both parties to refer to the agreement as needed to answer any questions that may arise. Just like the principal, the agent will be able to avoid any potential disputes and understand exactly what their obligations are. Neither of these parties wants to encounter any disputes and having a sales agency agreement is an easy way to avoid them from the beginning.
Sales Agency Agreement Traps and How To Avoid Them
It is no secret that improperly drafted sales agency agreements can lead to problems for both end-users and distributors. Without clear detail, the obligations of the respective parties can be easily misconstrued over the years, leading to costly litigation where the damage done to one side or another might be substantial. Accordingly, it is important to avoid hiring an attorney that does not have experience in drafting sales agency agreements. Such attorneys will not know what might lead to possible litigation and how to best avoid it.
There are four main areas that frequently need to be addressed in sales agency agreements in order to avoid problems . These are:
Each of these areas has been the topic of considerable litigation in the past, and the amount of money that can be involved in a dispute of this nature is extraordinary. Negotiating a good agreement that clearly spells out every party’s obligations and responsibilities is the best way of avoiding issues that might lead to costly litigation. It is worth consulting with an experienced attorney to craft the salesperson agreement, as it is much cheaper to talk through the details now than to litigate the details at a later date.
The Legal Side of Sales Agency Agreements
A variety of legal considerations are involved in the creation and enforcement of a sales agency agreement, not the least of which is that a sales agency agreement will usually be governed by the laws of a particular state or country (and forums may vary throughout the stages of negotiating, execution and enforcement). Jurisdictional issues are a particularly delicate consideration when the Company is based in the United States and the Distributor resides in another country. If litigation arises, establishing that a court has proper jurisdiction over a defendant is the most important threshold issue, and invalidating a judgment based on improper jurisdiction is critical to ensuring a favorable outcome for the defendant’s interests. Accordingly, it is crucial that the Company consult with legal counsel with relevant international experience when drafting a sales agency agreement for a foreign market, since included clauses designed to specify jurisdiction and the governing body of law are of critical importance.
In addition, if an international sales agency agreement is at issue, possible international trade law considerations may come into play, such as U.S. export control laws (including the Export Administration Act of 1979, the Export Enabling Act, and the Export Administration Regulations). Is the sale of goods by a foreign distributor to a foreign purchaser subject to the U.S. government’s export controls? Are the exported goods controlled for national security reasons or for foreign policy reasons, or are they on a Commerce Control List? The answer to these questions will dictate whether the distribution and resale of particular goods by a foreign distributor (or involving U.S. entities or any U.S.-made products) will be subject to regulation. If any determination regarding whether U.S. export laws will apply is unclear, it is usually advisable to determine that these laws do apply, so that the risks of liability arising from violating export controls and regulations are minimized.
Ending A Sales Agency Agreement
When the time comes to terminate a sales agency agreement, whether it is mutual agreement, expiry or for cause, a number of provisions in the agreement should be kept in mind.
Notice
In the event of termination on expiration of the term or by mutual agreement no notice is required. However, a termination may occur following the giving of written notice during the term of a sales agency agreement. The minimum notice period is as follows:
a) 30 days for an agency agreement that allows the registrant to sell or purchase a category of goods (other than a steel or premium agency agreement);
b) 60 days for a steel agency agreement if the parties are engaged in the sale or purchase of steel products made in Canada;
c) 90 days for a much redeemed agency agreement that allows the registrant to sell or purchase a category of goods (other than a steel or premium agency agreement);
d) 180 days for a much redeemed agency agreement that does not allow the registrant to sell or purchase steel products made in Canada and is not a premium agency agreement;
e) 6 months for a premium agency agreement if the parties are engaged in the sale or purchase of steel products made in Canada;
f) 6 months for a premium agency agreemnt if the parties are not engaged in the sale or purchase of steel products made in Canada;
g) 1 year for a steel agency agreement that is not a premium agency agreement if the parties are not engaged in the sale or purchase of steel products made in Canada and the agency agreement is made before the Steel Industry and Consumer Fair Practices Act is proclaimed into force.
Causal Termination
In addition , either party may terminate a sales agency agreement on 5 days notice if the other party has committed a material breach of the agreement, misappropriated money obtained by the sale or purchase of goods under the agreement or committed an indictable offence.
Best Practices
It is important to remember that the common law provides both a registrant and a supplier with the right to terminate on reasonable notice. As a result, a sales agency agreement should expressly state that, while the parties are required to comply with the minimum notice periods above, the parties are free to terminate on longer notice, or on shorter notice by mutual agreement. A mutual agreement may be made at any time.