The relationship between suppliers and manufacturers’ representatives often dissolve during a dispute that cannot be resolved among them without outside assistance. That assistance is often a court, teams of lawyers, or arbitration. All three alternatives are expensive in terms of time and money. Relying upon legal alternatives is the least desirable course of action. Can one craft a representative agreement in such a way that reduces the likelihood of the involvement of courts, lawyers or arbitrators? Certainly! This article explains that by ensuring that there is a provision for annual renewal of the agreement, the parties may achieve termination without legal involvement.
What Is Annual Renewal?
An annual renewal clause calls for the automatic termination and renewal of the agreement at the end of each calendar or fiscal year. Such a clause can range from two to four paragraphs and those paragraphs are rarely intricate. A typical clause might suggest, “This agreement will automatically end, effective December 31 of the year that the agreement was originally signed. Should either party, (supplier or manufacturers’ representative) choose to not enter into a new agreement, the party choosing to terminate the relationship must give written notice at least 30 days, and not more than 60 days prior to December 31.”
Termination during the middle of the contract year can be cumbersome. If one of the parties becomes dissatisfied with its partner during the middle of the year due to a specific reason, that party could attempt to terminate the agreement “for cause.” In some cases, the opposing party accepts the problem and responsibility for cause, (understaffing, poor performance, failure to organize customer meetings or seminars, or any of hundreds of other “causes”). In those cases, the parties abort the representative agreement in the middle of a contract year. Both parties go in their respective directions and life moves on.
However, suppliers and manufacturers’ agents can and do frequently disagree over the nature and the cause of that problem. If a supplier chooses to terminate the manufacturers’ agent “for cause,” and the agent disagrees with the supplier’s assessment and ownership of the problem, it can be difficult if not impossible to prove cause without outside (i.e., legal), assistance. A simple solution to this problem if there is an annual renewal clause in the representative agreement is to wait until 60 days prior to the end of the agreement. Draft and deliver a Notice of Intent to Terminate to the partner. In this case, both the supplier and the manufacturers’ agent spend their last days as partners dealing with customer issues and avoid spending energy squabbling over problems.