THE INDEPENDENT REP AGREEMENT
IVAN HOFFMAN, B.A., J.D.
Many publishers and other companies, seeking a way out of or in supplement to the distribution quagmire (read the several articles on my site dealing with the distribution system as it applies to the book publishing industry. Click on “Articles for Writers and Publishers”), hire independent representatives to handle their books or other products or services. Depending on the nature of those products, there are a number of provisions that should be included in all such independent rep agreements.
Certainly among, but not all of the provisions that should be included in a written agreement are:
1. Clearly the term of the engagement should be set forth with clarity. The term can be made subject to an option to extend the agreement and this option can be exercisable by the company or the rep. If it is a company option, then the terms of that option must be set forth as well including upon what conditions such options arise and how it is to be exercised, if it is. If it is a rep option, then here too the terms of the option must be set forth including when such option vests in the rep. The latter refers to provisions that give the rep the choice to extend the agreement or not. All of these provisions have implications for other provisions including but not limited to those relating to commission and other forms of payment. Note specifically that, depending on the relative negotiating leverage of the parties, the payment to the rep may extend beyond the term of the agreement. See further comments below.
2. The territory of the rep has to be defined. This can be defined in a geographical manner, such as by area, state etc. or it can be defined by market segmentation, or it can be defined by a listing of specific customers that the rep is engaged to service.
3. Whether the engagement is exclusive or non-exclusive and as to which party the said exclusivity/non-exclusivity applies. This means that the agreement must address whether the rep is exclusive to the company (meaning that the rep cannot handle either other products or other competitive products, however that is resolved in the agreement) or whether the company is exclusive to the rep (meaning that the company can or cannot engage the services of other reps to do the same work of the rep within the territory as defined). If the company is exclusive to the rep, the agreement should contain some form of non-circumvent provisions protecting the rep against the company or other reps going to the customers directly or otherwise interfering with whatever rights the rep is granted, territorially and otherwise, and thereby depriving the rep of commissions.
4. The commissions must or course be defined with precision including covering issues as to when the commissions accrue, whether the commissions are paid on sales made during the term of the agreement with the rep or paid on sales throughout the lifetime of the product as placed by the rep. There should also be provisions dealing with returns of products, credits, uncollected funds and the like. There should be provisions dealing with the payment or reimbursement of expenses to the rep and specifically what expenses are not payable or reimbursable by the company.
a. Depending on the relative bargaining position of the parties, payment to the rep can be more extensive, and expensive, than merely percentages of sales. If the rep is in demand, the rep may be in a position to obtain payment based on increase in value of the company as a result of the activities of the rep. This might be especially significant if the company is a start up or relatively new to the marketplace.
5. The nature of the relationship should be set forth with specificity including, if applicable, that the rep is an independent contractor with all that that implies. Companies should check with applicable state and federal laws regarding taxes, workmen’s compensation and other laws in this regard. There are important threshold issues, and legal and financial consequence, in determining whether or not a party is an independent contractor or a bona fide employee.
6. Ownership of work product of the rep. Since the rep is presumably, within the 4 corners of this article, an independent contractor (see 5 above), issues abound about the ownership of the rep’s work product especially if the work product involves creating materials that may have protectability under either copyright, trademark or other laws. This includes writings, graphics, advertising materials and the like. Again, companies should check with their state laws in addition to the impact federal legislation may have. This federal legislation includes trademark, copyright and other laws. Independent contractors are treated very, very differently than employees..
7. Related to ownership of work product issues but independent of those issues are issues dealing with confidentiality of materials the company deems to be secret or otherwise protected such as customer lists, marketing plans and other such materials. Merely stating in the rep agreement that certain materials are confidential or trade secrets does not make it so. Read “Inevitable Disclosure of Trade Secrets” and “Trade Secrets.”
8. There may be provisions, especially in relationships in which products are involved, about warranties and indemnities and/or insurance on the part of the company as to the products. Hold harmless issues should be covered as well.
9. Irrespective of whether the rep is an individual or a company, the agreement should deal with the right of the rep to assign his or her obligations and duties and any restrictions thereon.
Clearly there are many other provisions that should be included in this form of agreement and this article is certainly not intended to be exhaustive of those provisions or how the issues are resolved within such an agreement.
As you can see, merely “hiring” a rep or, from the rep’s standpoint, being hired, without benefit of a written agreement covering the above, along with the said many other provisions, lays the foundation for legal disputes about many issues. To those seeking to “save” money by dispensing with such written agreements, be aware that the cost of such “savings,” should disputes arise, will likely be far, far more expensive than having done it “right” in the first instance.
Help me is almost always
cheaper than fix me.
© 2003 Ivan Hoffman. All Rights Reserved.