We have previously written blogs about how the Michigan Sales Representative Commission Act and the Procuring Cause Doctrine can help to level the bargaining power between a terminated commissions employee and their ex-employer.  Is there anything that an employer can do to take the power back?  Knowing that these laws exist is a good first step, but establishing solid business practices can avoid exposure altogether.

DRAFT SOLID CONTRACTS: The first thing that any employer considering hiring an employee should do is reduce their agreement to writing.  Having predictable outcomes to employment issues not only puts the parties at ease but also cuts down on the need for expensive litigation when things go wrong.  In light of the Michigan Sales Representative Commission Act and Procuring Cause Doctrine any commission-based employment contract must be carefully drafted.  How commissions are earned should be specifically set out, when payment of commissions is due should be clear and how post-termination commissions will be paid should also be outlined.  Essentially, an employer should be able to come up with a hypothetical based on their business practices and immediately know what is due, to whom, and when.

STICK TO YOUR CONTRACTS: If you set out specific terms in your contract outlining what commissions will be paid, when, and to whom, stick to those terms.  The penalty provisions in the Michigan Sales Representative Commission Act (up to $100k plus attorneys fees) give an employer ample reason to pay commissions when they come due.  If a disagreement arises with an employee, deal with it, do not just sweep it under the rug and hope it goes away.

CONSIDER A SEVERANCE PACKAGE: Chances are, if a relationship is being terminated, neither side wants to drag out the break-up.  Even when a valid contract exists, the Procuring Cause Doctrine can make a determination of what commissions are due following termination a gray area.  Gray areas are areas that we attorneys know are ripe for litigation.  This means that if both sides are not satisfied with what is owed and when, the break-up of employer/employee may drag on for months or even years.  Both sides should see the value negotiating terms of a fair severance package to prevent this from happening.  Finding neutral ground that settles all issues related to potential or real future commissions is typically in the best interest of both parties.

If your business is considering hiring commission-based employees or already utilizes their services, let us sit down with you and make sure that you are doing everything that you can in the off-chance that the relationship sours.  Let The Law Office of Mattias Johnson create a predictable plan for your business so you can go about selling your goods or services without fear. 

(For other drafting tips and considerations see our blogs on Non-Competition Agreements, Non-Solicitation Agreements, and At-Will Employment)

When starting a new job in Michigan, workers are often asked to sign some version of a non-competition or non-solicitation agreement.  These agreements are meant to protect the business’s reasonable interests should your time with the business cease.  For many reasons, these agreements are not well understood by those who are left without an option but to sign it or else risk not getting the job.  Conversely, when employment terminates, businesses are often left wondering what the agreement actually gives them the power to do.

While there is nothing inherently wrong with these agreements, and while they have been in use for many years, Northern Michigan Courts have routinely limited their effect. The starting point is that the agreements must protect a reasonable business interest.  You cannot prevent someone from using general knowledge that they gain through employment in the future, but if there is something special about how your business operates, you can protect it.  These agreements must also be specifically tailored to represent a reasonable protection based on duration, geographic scope, and subject matter coverage.  Finally, these agreements must not seek to simply prevent competition. 

Here is a look at a few things that every employer that utilizes these agreements and every employee that signs one, should know:

EMPLOYERS:  Be reasonable and be clear.  I always suggest against using boiler plate agreements that you find on the internet, at least without significant editing, because no two businesses are the same.  You may have a specific process that you developed to bolster your business that is not generally known in the industry.  You may have client lists that have taken years and many thousands of dollars in advertising to build.  These are reasonable considerations to protect.  It is inherently reasonable to prevent an employee from taking these processes and using them to his or her own financial gain but you must limit this prevention so it protects your interests specifically.  If you only do business in Traverse City, you need to limit the agreement to actions by the former employee to this geographic area (after all, it shouldn’t hurt your business if he or she uses the processes in Texas).  Consider using a mile radius that covers a few neighboring counties especially if you could show that some of your clients, past or present, hailed from those areas.  Limit the duration of the agreement to 3 years or less.  Michigan Courts have consistently held that longer durations are unenforceable.  Finally, limit the subject matter to what it is that you are seeking to protect.  You cannot prevent an employee from making any use of his training or degree by casting a broad net that covers jobs that in no manner compete with yours.  The key is to be clear and concise so that if you need to have the Courts enforce your agreement you already have your ducks in a row.

EMPLOYEES: READ THE AGREEMENT BEFORE YOU SIGN!  I know that in the excitement of landing a new job you would do just about anything to make the transition go smoothly, but not all jobs work out and you need to know that if you need to find something else, these Agreements will not prevent you from doing so.  An unreasonable restriction can always be challenged in the Courts but it may very well cost you thousands of dollars to do so.  Make sure you understand exactly what it is that the employer is seeking to protect.  They have legitimate interests in protecting their business, but not in preventing you from getting your next job if need be.  There may be room to negotiate the terms of the agreement but this can only be done before you actually sign, so know what you are getting into and know your rights.