Report on the Michigan Sales Representative Statute and

Recommendations to the Legislature

 

 

I.                   Scope of the Michigan Sales Representative Statute and the Awarding of Damages and Attorneys’ Fees under the Statute.

 

A.     Background.

 

The Michigan Sales Representative Statute (Statute), MCL 600.2961, enacted as a section of the Revised Judicature Act of 1961, provides a remedy for salespersons who, after termination of their employment, are denied commissions for sales made before their termination.  

 

B.     The Kenneth Henes Special Products Procurement v Continental Biomass Industries, Inc. decision.

 

In Kenneth Henes Special Products Procurement v Continental Biomass Industries, Inc., 86 F Supp 2nd 721(ED Mich 2000), the United States District Court focused on the three following issues regarding the Statute:

 

(1)  Does the Statute provide a remedy for a sales representative who entered into a sales representative contract in Michigan, if the sale for which the commission is claimed was not made in Michigan?

 

The pertinent language in the Statute provides:

 

(1) As used in this section:

 

***

(d)   “Principal” means a person that does either of the following:

 

***

 

(ii) Contracts with a sales representative to solicit orders for or sell a product in this state.

 

MCL 600.2961(1)(d)(ii).

 

The Court discussed the ambiguous placement of the phrase “in this state” in MCL 600.2961(1)(d)(ii), noting that it could be read as referring to the situs at which the contract was entered into, the situs of the sale of goods, or the situs of the sales representative.  After examining the legislative history of the Statute, the Court held that the Statute would apply to sales representative contracts entered into in Michigan, and, therefore, would provide a remedy to a sales representative who was a party to such a contract even if the sale for which the commission is claimed was not made in Michigan.

 

(2)  How are damages calculated under the Statute whenthe intentional withholding of several commissions of varying amounts, some of which exceed $50,000, are at issue? 

 

The pertinent language in the Statute provides:

 

(5)    A principal who fails to comply with this section is liable to the sales representative for both of the following:

 

(a)  Actual damages caused by the failure to pay the commissions when due.

 

(b) If the principal is found to have intentionally failed to pay the commission when due, an amount equal to 2 times the amount of commissions due but not paid as required by this section or $100,000.00, whichever is less.

 

MCL 600.2961(5).

 

The Court indicated that the language of MCL 600.2961(5)(b) quoted above could be interpreted as requiring any of the following possible different ways of calculating damages:

 

(a)  The amount of each intentionally withheld commission is doubled.  All of the amounts resulting from the doubling are added together to determine the amount owed under MCL 600.2961(5).  If, however, the amount resulting from the doubling of any one commission is more than $100,000, the figure of $100,000 is used in regard to that commission.

 

Example:

 

Amount of intentionally                    Amount resulting                                   Amount calculated

withheld commissions                      from doubling                                       under MCL 600.2961(5)

(not to exceed $100,000)

 

$40,000                                         $80,000   (i)                                         ((i) + (ii) + (iii))

$45,000                                         $90,000   (ii)                                             $270,000

$60,000                                         $100,000 (iii)

 

(b)  The amount of each intentionally withheld commission is doubled.  The amounts of all intentionally withheld commissions plus the amounts resulting from the doubling are added together to determine the amount owed under MCL 600.2961(5).  If, however, the amount resulting from the doubling of any one commission is more than $100,000, the figure of $100,000 is used in regard to that commission.

 

Example:

 

Amount of intentionally                    Amount resulting                                   Amount calculated

withheld commissions                      from doubling                                       under MCL 600.2961(5)

(not to exceed $100,000)

 

$40,000   (i)                                   $80,000   (iv)                                       ((i) + (ii) + (iii) +)

$45,000   (ii)                                  $90,000   (v)                                        (iv) + (v) + (vi)

$60,000   (iii)                                 $100,000 (vi)                                            $415,000

 

 

(c)  The amount of all intentionally withheld commissions are added together.  The total is doubled.  If the amount resulting from the doubling is less than $100,000, that amount is added to the total to determine the amount of the award under MCL 600.2961(5).  If the amount resulting from the doubling is more than $100,000, the figure of $100,000 is added to the total to determine the amount of the award under MCL 600.2961(5).

 

 

Example:

 

Total of the amounts of                   Amount resulting                                   Amount calculated

intentionally withheld                       from doubling                                       under MCL 600.2961(5)

commissions                                   (not to exceed $100,000)                     ((i) + (ii))                     

 

$40,000                         

$45,000                         

$60,000                                     

 $145,000  (i)                                 $100,000 (ii)                                        $245,000

 

After reviewing a previous court decision and the language of similar statutes of other states, the Court held that the third option was intended, that is that the cap under MCL 600.2961(5)(b) applies cumulatively to unpaid commissions in the aggregate, and, therefore, the amount of damages under the Statute can never exceed the actual damages plus $100,000.

 

(3)  Does the Statute provide for attorneys’ fees for a party prevailing on an allegation of intentional failure to pay brought under MCL 600.2961 concerning one of several claimed commissions even though it did not prevail on other allegations brought under MCL 600.2961 for other claimed commissions, but nonetheless prevailed in regard to those commissions on alternative theories of liability?

 

The pertinent language in the Statute provides:

 

(1)  As used in this section:

***

(c)  “Prevailing party” means a party who wins on all the allegations of the complaint or on all of the responses to the complaint.

***

(6) If a sales representative brings a cause of action pursuant to this section, the court shall award to the prevailing party reasonable attorney fees and court costs.

 

MCL 600.2961(1)(c)(6).

 

The Court, based on past precedent, held that attorneys’ fees would be awarded in such an instance.

 

 

Questions Presented

 

1.  Should the Michigan Sales Representative Statute be amended to clarify that, for purposes of determining the liability of a principal for unpaid commissions, the term “principal” includes an individual who contracts in the state of Michigan with a sales representative even if the sales take place outside of Michigan?

 

2.  Should the Michigan Sales Representative Statute be amended to clarify the damages available for an intentional failure to pay a commission?

 

3.   Should the Michigan Sales Representative Statute be amended to provide that attorneys’ fees should not be awarded unless a party prevails on all allegations brought under the Statute?

 

 

 

Recommendation

 

1.      The Commission recommends that the Sales Representative Act be amended as follows, to clarify the definition of the term “principal”:

 

(1) As used in this section:

 

***

(d) “Principal” means a person that does either of the following:

 

(i)                  Manufactures, produces, imports, sells, or distributes a product in this state.

 

(ii)                Contracts IN THIS STATE with a sales representative to solicit orders for or sell a product in this state.

***

 

2.      The Commission does not recommend the amendment, as it finds the current provision to be of sufficient clarity.

 

3.       The Commission recommends that the Legislature closely consider whether the construction the Henes Court has given to MCL 600.296(1)(c) and (6) is in line with the Legislature’s intent, but otherwise makes no recommendation.