Minnesota recently amended its Termination of Sales Representatives Act to clarify an historically ambiguous section of the statute regarding its application to sales representatives (“sales reps”) who sell components to customers who then incorporate the component in a larger product. The amendments make it clear that these sales reps are protected by the law and thereby expands coverage of this unique law.
What is the Minnesota Termination of Sales Representatives Act?
The Minnesota Termination of Sales Representative Act (“the Act”), Minn. Stat. § 325E.37, provides special legal rights to independent contractor sales representatives who reside in, or whose sales territory includes, the State of Minnesota. These rights include protections against termination of oral or written contracts between the sales representative and its principal, usually a manufacturer.
The Act only covers a sales rep “who contracts with a principal to solicit wholesale orders and who is compensated, in whole or in part, by commission.” Subd. 1(c). A “person,” as defined by the Act, includes natural persons, partnerships, corporations, and all other entities. Subd. 1(d). However, the Act does not cover a person who: (1) is an employee (not an independent contractor); (2) purchases goods for the person’s own account for resale; (3) holds goods on a consignment basis for the principal’s account for resale; or (4) solicits orders for sale to an “end user,” rather than for resale. Subd. 1(d)(1-4).
Many sales reps in Minnesota sell products to large retailers based in this state, such as Target and Best Buy. These sales reps are clearly protected by the Act. There has been a question, however, at least until now, as to what constitutes an “end user” in the Act’s fourth exclusion in the context of sales of parts to other manufacturers, including original equipment manufacturers (“OEMs”). In Robbins & Myers, Inc. v. Winger Assocs., Inc., 874 F. Supp. 252, 255 (D. Minn. 1993), a U.S. District Court suggested that sales to OEMs were not covered by the Act. The sales rep in that case argued that the fourth exclusion only applied “to those who sell or offer goods to consumer end users.” The court disagreed, ruling the Act’s language was “unambiguous” and excluded all sales made to an “end user.” Robbins & Myers, Inc. 874 F. Supp. at 255.
Historical Ambiguities Clarified
Despite the ruling in Robbins & Myers, Inc., the question of whether a sales representative who solicits orders from an original equipment manufacturer remained has remained unclear, because the OEM is arguably not the end user. For example, if a sales representative sells computer chips to a company that incorporates the computer chips into its own computers that are later sold to retailers and eventually consumers, the consumer is arguably the end user of the chip.
Historically, the Act required covered sales to be “wholesale orders… for ultimate sale at retail,” and the sale of goods to an intermediary company may not have qualified as “wholesale.” Subd. 1(e). Under the newly amended statutory language, however, the answer is a clear yes, as Subd. 1(f) specifically includes the sale of goods to original equipment manufacturers under the definition of “wholesale orders.”
This change is significant as it expands the Act’s original scope to include a new subset of protected businesses and business contracts. The amendment also clarifies that a sale to an “end user,” means the sale of goods to a retailer.
The Amended Language
The amendment reads, in part, as follows (additions are underlined and subtractions are indicated by strike-out):
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(d) “Sales representative” means a person who contracts with a principal to solicit wholesale orders and who is compensated, in whole or in part, by commission.
Sales representative does not include a person who:
(1) is an employee of the principal;
(2) places orders or purchases for the person’s own account for resale;
(3) holds the goods on a consignment basis for the principal’s account for resale; or
(4) distributes, sells, or offers the goods, other than samples, to end users, not for resale at retail.
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(f) “Wholesale orders” means the solicitation of orders for goods by persons in the distribution chain for ultimate sale at retail, and also includes material, component, or part orders for use or incorporation into a product, and later resold.
Effective Date
These changes became effective on May 3, 2017
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Craig W. Trepanier often represent sales reps and manufacturers with contracts and contract disputes under the Minnesota Termination of Sales Representatives Act. He can be reached at craig@trepanierlaw.com or at 612-455-0500.