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Triple Hit Victory for California Independent Wholesale Sales Representatives

A rarely-used California statute (the Independent Wholesale Sales Representatives Contractual Relations Act of 1990, California Civil Code Section 1738.10, has been relied upon by an appellate court to uphold treble penalties. Reilly vs. Inquest Technology, Inc., 20113 DJDAR 10164 (4th Dist. 7/31/13). This act is applicable to California assemblers, manufacturers, distributions, jobbers, weavers, mine operators and producers of intangible products.

This law mandates that California manufacturers, distributors and others have written contracts with their commission sales reps. The written contract must be signed and a copy given to the sales rep. It must specify the method and rate of calculating commissions, the schedule for commission payments, the charge backs that will be taken, territory covered and all exceptions to the territory assigned.

After the sale is made, the rep must be given a detailed accounting of the orders on which the commissions were paid, the rate, and any charge backs. These disclosures may not be waived by any agreement between the parties.

The purpose of the law is to give incentive to, and protect sales reps who spend many hours marketing their products with unique protection from unjust termination of the territorial market areas.  If the manufacturer or distributor willfully fails to enter into al written contract or willfully fails to pay commissions, then a civil action may be had for three times the damages. The rep is also entitled to attorney fees.

What if you are an employee and not an independent contractor? Good news and bad on that ground. The good news is that employees who work on a commission are protected under a separate code, California Labor Code 2751. This provides employees with a written contract stating the basis on which commissions are due. The bad news is that section 2752 has been repealed. This provided for treble damages for employees who did not get statements in accordance with 2751.

The Reilly case did not end just at the juries awarding of damages totally 2.1 million and the trial court trebling those damages to 6.2 Million. In addition, the act provides that the prevailing party shall receive attorney fees. Finally, in what must have felt like a really, really bad day for the defendant Inquest Technology, the court ordered that the individual owners of the company be personally liable for the verdict under a theory of “alter ego” liability. Generally, alter ego results when owners use a corporation without regard for either corporate formalities or they use it for their own personal expenses. Its not clear what the basis for alter ego liability was in this case. We add our personal congratulations to Eric E and H. Kim S. whose victory was reported in the Daily Journal.