The importance of a clearly defined written commission agreement with outside sales representatives was illustrated in the recent $8,700,000 jury verdict in the Rhode Island State Court, case of BHG, Inc. vs. FAF, Inc.

In that case, BHG, Inc. was a sales representative organization, which was the sales representative for FAF, Inc., a manufacturer of jewelry products. BHG stated that it had an oral agreement to receive 10% commission on sales from accounts generated by it on behalf of FAF.

In fact, in a period of 5 years, BHG introduced FAF products to different retail accounts and received 10% commission on sales during this period. BHG eventually succeeded in introducing FAF to Wal-Mart stores, which became FAF's largest customer.

However, once FAF began selling to Wal-Mart it informed BHG that it no longer needed BHG's services and refused to pay 10% commission on sales made or on a going forward basis. BHG sued claiming breach of contract for ongoing sales commissions on accounts introduced to FAF products by BHG, such as Wal-Mart stores.

While FAF contended that there was no agreement to continue to pay commissions for the duration of its relationship with customers brought to it by BHG, it had no written contract to dispute BHG's contrary contention and the jury evidently believed BHG's statement that it had an oral contract for a 10% commission.

The jury found that BHG was damaged by FAF's breach of the oral contract in the amount of $8,700,000 and returned a verdict against FAF for that amount. The case was later settled for a confidential amount.

The State of New Hampshire has a statute protecting certain outside sales representatives and require written contracts, but that statute only applies to individuals, not corporations like BHG.

However, respective of that statute, this case is an important reminder as to the benefit for both a company and its outside sales representatives to state up front how much the commissions are, when and how they are earned, and how long the commissions would be paid on any account. If the company has an inside sales force, wage and hour laws require written clarity as to those specific commission terms.

If a company does not already have in place a clear written commission agreement with its inside and outside sales force, it would be prudent to speak with the company's attorney about creating such a written agreement.