Paul Stewart Logistics Law

Logistics Sales Agents Can Have Continuing Income Rights to Accounts They Have Procured

For as long as I have been a involved in the logistics industry, strong debate, often resulting in litigation, has continued with regard to the “ownership” of customer accounts income, once solicited and made part of the logistics company’s revenue by the efforts of an employee salesperson or an independent contract sales agent. Fundamentally, the question becomes what happens to the salesperson’s right to continuing commissions when the former relationship is terminated or perhaps unilaterally modified by one or both parties?

Of course, it is possible and preferable to fully provide for proprietary rights to customer “business”, or continuing commission revenue, by way of an express written contract between the commissioned sales person, or independent agent, and the logistics company for which they may be working to generate transactional revenue (logistics services sales).

However, many times such relationships are allowed to develop without an express contract, or with a contract that does not adequately deal with issues such as continuing commissions after the former relationship has terminated or been unilaterally modified.

I. The Verbal, Historical or Implied Contract for Continuing Commissions on Sales Revenue.

A. Establishing Contractual Right to Continued Sales Commissions by way of Implied Contract.

In the absence of an express written contract, the most likely scenario for disagreement over rights to continuing commissions is where the parties have a verbal contract, which of course is likely to be understood differently by each party; especially when one or both parties try to modify the terms from historical practice. Verbal contracts, or contracts with missing terms which have been historically performed by the custom of the parties, are often considered “implied contracts”.

“In an express contract, the parties assent to the terms of the contract by means of words, writings, or some other mode of expression. . . In a contract implied in fact, the conduct of the parties and the surrounding circumstances show mutual assent to the terms of the contract.” River Park Hosp., Inc. v. BlueCross BlueShield of Tenn., Inc.

With these distinctions of fundamental contract law, the commission salesperson may first establish that a contract exists between the company and the salesperson, even in some instances wherein the company may believe that no contract exists beyond at will termination of the commission relationship. Once the elements of a contract between the parties are proven, the question becomes whether the salesperson/agent is entitled to continuing compensation for in futuro commissions.

B. The Procuring Agent Doctrine.

An agent or employee who has demonstrated either an express or implied contractual right to previous commissions may then demonstrate a continuing right to certain commissions pursuant to the “procuring agent doctrine”. Many courts, including the state of Michigan, summarize this concept as follows:

It would appear that underlying all the decisions is the basic principle of fair dealing, preventing a principal from unfairly taking the benefit of the agents or broker’s services without compensation and imposing upon the principal, regardless of the type of agency or contract, liability to the agent or broker for commissions for sales upon which the agent or broker was the  procuring cause, notwithstanding the sales made have been consummated by the principal himself or some other agent. In Michigan, as well as in most jurisdictions, the agent is entitled to recover his commission whether or not he has personally concluded and completed the sale, it being sufficient if his efforts werethe procuring cause of the sale.

As a matter of Michigan law, this principle of fair dealing, often referred to as the procuring cause doctrine, is implied in a commission sales contract. Reed v. Kurdziel.

Similarly, in a case involving Ohio law, the court stated, “the [procuring] cause doctrine gives to an agent the right to receive a commission where the agent has done substantially that which was required of him under the terms of his contract. Thus, the doctrine works in conjunction with, and not in place of, the agreement between the parties.” See Davis & Tatera, Inc. v. Gray-Syracuse, Inc., 1992 WL 124336, * 6 (S.D.Ohio May 27, 1992)

Therefore, in many instances, “once the agent or salesperson demonstrates that he is the “procuring cause” of a sale, he may receive post-termination commissions where the customer’s accounts did not require further servicing or negotiation.” Buchanan Co. v. Methode Elecs., Inc.

II. Conclusion…The Shield or Sword of the Procuring Cause Doctrine.

Of course, this forum is not proper for a full development of the procuring cause doctrine as a legal principle applied by many state and federal courts. However, it is sufficient for the suggestion to those participating in less than certain commission sales agreements, that under many circumstances and historical practices, the law of implied contracts, and good faith and fair dealing, may well provide a sufficient shield to the sales agent which may prevent terminating continued commissions under certain circumstances.

The procuring cause doctrine is mostly applied by the courts to avoid the inequity of a sales agent’s work and responsibilities going unrewarded, after having been both invested and effective at originating initial business.

The doctrine is that, in the absence of a contrary agreement, an agent is entitled to be compensated by his principal for a deal of which the agent is the “procuring cause,” even if he has been cut out of the deal, preventing him from doing the work for which the agency contract entitled him to be compensated. Milwaukee Auction Galleries, Ltd. v. Chalk, 13 F.3d 1107, 1110 (7th Cir. 1994).

Clearly, the specific rights to continuing commissions by a sales agent should be specified by the terms of an express contract. Where that is not done effectively, and where the potential long-term result may be inequitable to those who have invested necessary effort and capital, under certain circumstances, the procuring agent or procuring cause doctrine may well provide continued rights to commissions as defined by the facts and equities of historical practice.

Comments are closed.