The Michigan Sales Representative Commission Act (“SRCA”), MCLA 600.2961, provides protection to independent sales representatives of manufacturers or suppliers who improperly refuse to pay commissions on goods sold. The SRCA requires that commissions be paid to sales representatives in a timely manner. The terms of the contract between the principal and the sales representative will determine when a commission is due. However, if the contract does not state when commissions are due, past practices between the parties will prevail. If there are no past practices between the parties, the prevailing custom and usage in the state for that business prevails.
If a sales representative’s contract is terminated, all commissions due at the time of termination must be paid within 45 days of the date of termination. If commissions are due after the contract termination date, they must be paid within 45 days of the date they were due. SRCA requirements cannot be waived by contract.
Under the SRCA, a manufacturer or supplier that fails to comply with the timely payment of commissions law is liable for actual damages for non-payment of commissions and, if the manufacturer or supplier is found to have failed to pay commissions.” intentionally” when due, the sales representative is also entitled to two times the amount of the commission or $100,000, whichever is less. If the sales representative files a lawsuit under the SRCA, the court must also award the prevailing party reasonable attorneys’ fees and court costs.
Up to this point, it has not been clear what the word “intentional” means in the Act; that is, if it requires an act of bad faith or simply means the withholding of a commission on any basis other than inadvertent error or accident. Recently, a Sixth Circuit Court of Appeals decision asked the Michigan Supreme Court to define the term “intentional” in the statute. If the Michigan Supreme Court decides that word of intent does not require a show of bad faith, the SRCA will remain a significant danger to those manufacturers and suppliers who wish to withhold commissions from a seller, even if they do so in good faith. . Until the Michigan Supreme Court rules on this issue, manufacturers and suppliers should operate with caution, as they may be liable for double damages even if they withhold commissions based on a good faith disagreement with the sales representative.
However, at a minimum, manufacturers should ensure that the contract with their sales representatives explicitly states when and under what circumstances a commission will be paid. If one part of a commission is disputed but another part is not, the undisputed part must be paid. In the event a decision is made not to pay a commission, manufacturers and suppliers must fully document their reasons for withholding it. This will make it easier for them to make the argument that the commissions were not owed to the sales rep if the sales rep later files a claim for those commissions. If many dollars are involved, it may be wise for the parties to a commission dispute to consult legal counsel early in the dispute process.
