Useful Application of the Procuring Cause Doctrine
Redefining the Procuring Cause Doctrine
I have authored articles and been published many times on the topic of using the
Procuring Cause Doctrine to garner post-termination commissions when wrongfully
terminated.
Recently, we were reacquainted with the doctrine in a commission dispute for one of our
latest clients. This procuring cause case was different than any other we had
encountered.
What is the Procuring Cause Doctrine?
Territory Development Fee
The Procuring Cause Doctrine is a legal theory allowing the collection of sales
commission damages on sales that occur even after termination.
98% of Representation Agreements between a principal and an independent sales rep
have limitations on the rep’s right to commissions on sales that occur after termination.
Example: “This contract may be terminated by either party upon 30 day written
notice to the other. In the case of termination, the Representative will be entitled
to commissions only on orders received prior to the effective termination date.”
However, in perhaps 2% of the cases presented there is no such limitation, and the
contract simply addresses the right of either party to terminate, usually with 30 day
written notice, with no limitation on the right to commissions after termination.
Simplest statement of the rule
If there is no written contract between the parties (which is a violation of many state
laws pertaining to sales reps by the way) or if the written contract does not address the
sales rep’s right to commissions on post-termination sales, then the rep can make a
tenable legal claim for commissions on any post-termination sales which have the rep’s
“fingerprints” on it.
Proving causation between the sales rep’s work prior to termination, and the post-
termination sales can (and often does) result in an award of damages to the sales rep.
A case study
Most of our clients are either engineers or highly technically trained in the field for which
they are seeking sales. Many of these sales people seek sales of their principals’
component parts to OEMs. Due to the technical aspects and engineering, it may take a
long time to procure such engineered sales. However, when they are successful, typically long-term sales result, often because of the commitment of the OEM to using
the specified component parts in their drawings and manufacturing process.
In perhaps one of the lowest tech cases my firm has ever seen, a sales rep in a
nontechnical field contacted us about being cut off on commissions for sales which his
sales agency had put in place prior to the termination.
This low-tech product was a standard staple for use in retail stores.
In a strange turn of events, the Distributor selling these products to mid-level retail
operations went out of business years prior. One of the customer service
representatives for the Distributor, who had strong relationships with many of the
decisionmakers and purchasers for the customers, approached the Manufacturer about
becoming its independent sales rep and procuring/maintaining the sales of the product
which were previously being handled by the Distributor.
The manufacturer agreed and confirmed a 10% commission would be paid to the sales
agency for any sales it procured. Strangely, and fatefully as far as the principal was
concerned, no contract was ever circulated or executed by the parties. Only emails
confirming the basic 10% agreement. Bare bones!
After several years of reaping commissions on sales to these accounts, the principal
leveraged the rep into accepting a 50% pay cut, decreasing the commission of 5%.
Several years after that, the rep was unceremoniously cut loose on a 30 day termination
notice with no promise of further compensation for the long-term sales it had procured
from two key accounts. At that time, the monthly commissions were approximately
$5000.
We were retained by the sales agency, threatened a lawsuit for long-term commission
payments based on the Procuring Cause Doctrine, and citing the California cases that
apply that damage theory. Within 4 months, after several rounds of letter writing, we
were able to garner a $60,000 settlement, amounting to one more year of commissions,
best of all with no further services to be rendered by our client.
Not a huge sum of money but $60,000 more than was offered prior to retaining us.
Sales reps and their principals should have clear provisions in their contracts defining
whathappens to the commissions for sales that are “in the pipeline” if the rep is terminated.
When they don’t, the above scenario comes into play.
Principals beware!
SRATM
The Sales Rep Attorneys
Find Out How Much Your Case Is Worth
Over 90% of our cases settle without prolonged litigation.