Traps For The Unwary: CSR Laws Can Turn Savings into Expenses

In tough economic times, many businesses turn to “commission only” sales staff in order to keep sales activity without permanent salaries. When it works, this can work well for both the CSR (Commissioned Sales Representative) and the company. When the relationship gets off track, however, small business owners can be surprised with litigation and extra expenses that exceed the savings they expected.

Over half of states have special statutes that apply to disputes between CSRs and the companies who hire them. Some require a written agreement; others do not. Most provide for multiplication of damages plus an award of attorneys fees and costs of suit to the CSR who prevails.

Prevention is Prudent

Both the CSR and the company should heed the same advice in most cases to reduce the likelihood of litigation later.

1. Know the law.
2. Have a written contract that includes:
a. Definite payment deadlines
b. Clear conditions for payment
c. Specific term and scope
3. Live by the contract

Begin by understanding the law that applies. Most will apply based on the residence of the CSR, not the company. Companies with CSRs in multiple states must know the law in each.

Then make sure the written representation agreement is thorough and signed by both parties. In some cases, statutes will fill in terms that neither party intended unless you expressly address those topics in the written agreement. At the very least, make sure the terms and conditions for performance pass the “grandmother test:” they are so clear your grandmother could understand them.

From that point, it is important that both parties follow the terms of the contract. Acting inconsistently with the agreement, even with the best of intentions, can establish a course of dealing argument that the actions of the CSR and the company replaced the written agreement. It is better to revise the agreement to fit the changing needs of your relationship.

Disputes Happen

If disagreements arise, the contract is the place to start looking for answers. If the situation is not addressed in the contract, then other writings may fill in the picture. Emails, policy manuals or general procedures can be used by a judge to determine what the “rules” are and how to resolve the dispute. Many disagreements can be resolved with an amendment to the contract that both resolves the present issue and prevents disagreement in the future.

The party seeking to enforce an agreement must first prove the agreement then his entitlement to a remedy. If he has not done his part, then the other party may not be obligated to perform. Likewise, any confusing terms in the contract will be generally interpreted against the interests of the party who drafted it, because courts assume the drafter was looking out for her own best interests. This is where the “grandmother test” comes in.