Michigan Sales Representative Commission Act Guide

Michigan’s Sales Representative Commission Act (SRCA), MCL 600.2961, requires a principal to pay commissions owed to a sales representative within 45 days after termination for commissions already due, and within 45 days after the due date for commissions that come due later. A principal that intentionally fails to pay is liable not only for the unpaid commissions but also for an additional amount equal to two times the unpaid commissions or $100,000, whichever is less. Any contract provision that tries to waive these rights is void.

The statute is short, but it carries real consequences for manufacturers, distributors, and the independent reps and commissioned salespeople who sell for them. Here is what both sides need to know.

Who the SRCA Covers

The Act, added to Michigan’s Revised Judicature Act in 1992, applies to relationships between a “principal” and a “sales representative.” The key definitions in MCL 600.2961(1) are:

• Principal: a person that manufactures, produces, imports, sells, or distributes a product in Michigan, or that contracts with a sales representative to solicit orders for or sell a product in Michigan.
• Sales representative: a person who contracts with or is employed by a principal for the solicitation of orders or sale of goods and is paid, in whole or in part, by commission. The definition excludes someone who places an order or sale for a product on his or her own account for resale.
• Commission: compensation owed to a sales representative at a rate expressed as a percentage of the amount of orders or sales, or as a percentage of profits.
• Person: an individual, corporation, partnership, association, governmental entity, or any other legal entity.

Three points stand out. First, the Act covers both employees and independent contractors, because it applies to anyone who “contracts with or is employed by” a principal. Second, the “person” definition means independent rep agencies organized as corporations or LLCs are covered, not just individuals. Third, the definitions are built around products and goods, so salespeople who sell only services should not assume the SRCA applies and may need to rely on contract law instead.

When a Commission Becomes Due

The SRCA does not set commission rates or decide which sales earn a commission. That is left to the parties. What the statute does is establish a hierarchy for determining when a commission is due:

• The contract controls. The terms of the agreement between the principal and the sales representative determine when a commission becomes due. MCL 600.2961(2).
• Past practices fill gaps. If the contract does not answer the question, the past practices between the parties control.
• Industry custom is the fallback. If there are no past practices, the custom and usage prevalent in Michigan for that type of business applies. MCL 600.2961(3).

Once the due date is fixed, the payment deadline follows. Under MCL 600.2961(4), all commissions due at the time a contract is terminated must be paid within 45 days after the termination date, and commissions that become due after termination must be paid within 45 days after the date they become due. That second rule matters when orders a rep procured ship or are invoiced after the relationship ends.

Damages for Unpaid Commissions

A principal that fails to comply with the Act is liable for two categories of damages under MCL 600.2961(5):

• Actual damages caused by the failure to pay commissions when due.
• Additional statutory damages, if the principal is found to have intentionally failed to pay, equal to two times the commissions due but not paid, or $100,000, whichever is less.

Because the additional amount is added to actual damages, the total exposure can reach three times the unpaid commission, which is why the SRCA is often described as a treble-damages statute. For example, a principal that intentionally withholds a $15,000 commission could owe the $15,000 plus $30,000 in statutory damages, for a total of $45,000. If the unpaid commission were $80,000, the additional amount would be capped at $100,000 rather than $160,000.

How the $100,000 cap applies when several separate commissions are intentionally withheld is less clear. A 2000 report by the Michigan Law Revision Commission noted that the statutory language can reasonably be read to calculate the cap in different ways, so parties in multi-commission disputes should expect this issue to be argued.

“Intentionally” Does Not Mean “in Bad Faith”

Principals often argue that they withheld payment because of a genuine dispute and should not face enhanced damages. Michigan courts have rejected a bad-faith requirement. In Peters v. Gunnell, Inc., 253 Mich App 211 (2002), the Court of Appeals held that nothing in the SRCA requires bad faith. The principal there admitted withholding commissions because of cash-flow problems and to pressure the rep to return show equipment. That was enough, and the rep recovered $8,102 in commissions plus $16,204 in statutory damages. The court warned that a principal that fails to resolve its accounts, or settles them erroneously, does so at its peril.

The Michigan Supreme Court confirmed that reading in In re Certified Question (Kenneth Henes Special Projects Procurement, Marketing & Consulting Corp. v. Continental Biomass Industries, Inc.), 468 Mich 109 (2003), holding that the plain language of the statute requires only that the principal purposefully fail to pay a commission when due. Evidence of bad faith is not required.

Attorney Fees and the “Prevailing Party” Rule

When a sales representative sues under the SRCA, “the court shall award to the prevailing party reasonable attorney fees and court costs.” MCL 600.2961(6). The definition of prevailing party is strict: a party “who wins on all the allegations of the complaint or on all of the responses to the complaint.” MCL 600.2961(1)(c).

In Peters, the Court of Appeals emphasized that a party cannot be a prevailing party unless it prevails fully on each and every aspect of the claim or defense asserted under the SRCA. Two practical consequences follow:

• A rep who wins on some claims but loses on others may not recover attorney fees under the Act, so complaints should be drafted carefully rather than loaded with every conceivable theory.
• The fee-shifting provision is not one-way. A principal that wins on all of its responses to the complaint can also qualify as the prevailing party.

You Cannot Contract Around the Act

Under MCL 600.2961(8), a contract provision purporting to waive any right under the SRCA is void. Principals cannot draft away the 45-day payment rule, the statutory damages, or the fee provision. The parties can, however, define when commissions are earned and become due, how they are calculated, and how long post-termination commissions continue, which is where most disputes are really won or lost.

The SRCA also does not displace other rights provided by law. MCL 600.2961(9). Reps frequently pair SRCA claims with breach of contract claims, and Michigan’s common law procuring cause doctrine, recognized by the Michigan Supreme Court in Reed v. Kurdziel, 352 Mich 287 (1958), can entitle a rep to commissions on sales for which the rep was the procuring cause, including in some cases after the principal ends the relationship, when the contract does not address the issue.

Practical Steps for Principals and Sales Representatives

For manufacturers and other principals, especially in industries such as automotive supply where rep relationships can span many years, the most effective risk management happens before a dispute:

• Put the rep agreement in writing and define the rep’s duties, territory, and accounts
• State precisely when a commission is earned and when it becomes due (order, shipment, invoice, or customer payment)
• Address post-termination commissions directly, including how long they continue
• Calculate and pay all commissions due within 45 days of termination, and do not withhold undisputed amounts as leverage
• If an amount is genuinely disputed, document the basis and get legal advice before deciding not to pay

For sales representatives, the priorities are similar:

• Keep copies of the agreement, commission statements, and any written changes to your commission plan
• Track the orders you procured and when they ship, are invoiced, and are paid
• Calendar the 45-day deadlines after termination and after later commissions become due
• Raise discrepancies in writing promptly, and consult counsel before filing so your claims are framed to support a fee award

Get Help With a Commission Dispute

Commission disputes often turn on contract language drafted years before the relationship ended. Clear sales representative and commercial contracts prevent many disputes, and Michigan manufacturers and rep agencies benefit from reviewing their agreements against the SRCA before a termination, not after. If a dispute has already arisen, it helps to understand how Michigan courts treat material breach of a business contract alongside SRCA claims.

Whether you are a principal facing a demand for unpaid commissions or a sales representative who has not been paid, the business attorneys at Revision Legal can evaluate your contract, your exposure or recovery under the SRCA, and the best path to resolution, including litigation when necessary. Contact us through the form on this page or call (855) 473-8474.