Beware of Potential Triple Damage Awards Under California’s Sales Commission Protection Act

As a business owner in California, being aware of and understanding the nuances of State laws that may pertain to your business is crucial to ensure compliance and avoid potential liabilities. One such critical piece of legislation is the “Independent Wholesale Sales Representatives Contractual Relations Act of 1990”), codified in California Civil Code 1738.10 et seq.. (the “California Act”). This Act provides major protections for commissioned independent sales representatives, including the potential for mandatory triple damage awards based on a breach of contract claim, under certain conditions. In this blog post, we will delve into the prerequisites for these triple damage awards, offering insights that can help safeguard your business assets.

Overview of California’s Sales Commission Protection Act

The California Act was designed to protect independent sales representatives by ensuring they receive the commissions they are rightfully owed, and acting as a deterrent to manufacturers breaching their contracts with their independent sales reps. Under this law, any agreement for commission payments on wholesale sales must be in writing, outlining the method of computation of commission and the schedule for payment, along with others stated requirements to be included in the contract. Failure to adhere to these requirements can lead to significant penalties, including the possibility of triple damages. 

As a harsh example, in 1998 my law firm became one of the first in California to obtain a triple damage judgment awarded under the California Act. A sales rep contacted my firm complaining that he had been denied $150,000 in commissions under his written contract with a manufacturer in the plastic injection molding business. The sales rep was able to garner a requirement contract for his principal with General Motors for the company to provide all plastic molding on the company’s then infant On-Star system. But the company used the technical provisions of the contract to terminate the sales rep in an effort to avoid paying commissions on the long-term sales to GM. Ultimately, what was $150,000 in commissions owed became a $750,000 judgment in California Superior Court, based on the triple damage provision and the award of moderate attorney fees.

Practical Implications for Business Owners

Understanding the nuances of the California Act  is essential for business owners to avoid costly litigation and potentially the payment of triple damages and the independent sales reps attorney fees. Here are some practical steps to consider:

  • Draft Comprehensive Agreements: Ensure that all commission agreements are in writing and include clear terms regarding the calculation and payment of commissions. This can prevent misunderstandings and provide a solid defense in case of disputes.
  • Adhere to Payment Schedules: Be diligent in adhering to the payment schedules outlined in your agreements. Timely payment is not only a legal obligation but also a way to build trust and maintain positive relationships with your Independent sales representatives.
  • Document All Transactions: Keep detailed records of all commission payments and related communications. This documentation can serve as evidence in the event of a dispute and can help demonstrate your commitment to fair business practices. Furthermore, documentation of the orders upon which commission is being paid must be included with every commission payment.

Seeking Legal Guidance

Navigating the complexities of the California Act can be challenging. To ensure your business is fully compliant and to mitigate the risk of triple damage awards, it is advisable to seek legal counsel to help draft comprehensive agreements.

If you need assistance with ensuring compliance with this statute or addressing any related legal matters, our legal team is here to help. We specialize in business law and have extensive experience in handling cases related to independent sales reps, their sales commissions disputes, and employer-employee agreements.