Washington Enacts New Law That May Void Employment Contracts With Wholesale Sales Representatives

Washington companies that employ wholesale sales representatives should pay close attention to a new Washington law that will void certain types of provisions in legally required sales-representative employment contracts and create significant penalties for noncompliance.

On March 19, 2020, Governor Inslee signed into law HB 2474. That bill amends the Washington Sales Representative Act, a statute that requires Washington employers of wholesale sales representatives to enter employment contracts with those sales representatives. The Act defines a wholesale sales representative as a person who earns commissions for soliciting orders for wholesale purchases on behalf of a "principal" that markets its products to retailers for resale. The law becomes effective on June 11, 2020.

Background

Since 1992, the Washington Sales Representative Act has required that contracts between employers and wholesale sales representatives:

• Be in writing;
• Set forth the method for computing and paying the sales representatives' commissions; and
• Be given to sales representatives.

The Act did not originally provide any specific remedies in the event of the breach of a contract by an employer.

HB 2474 Key Provisions

The Washington Legislature passed HB 2474 to address instances in which wholesale sales representatives were not paid commissions for sales they had made before separation from employment. The amendment results in the following changes to the Act:

• Employers cannot circumvent the Act by structuring sales-related compensation as bonus payments under an incentive compensation plan instead of as commissions;
• Employers must pay a commission to a wholesale sales representative if his or her "efforts" result in a sale, irrespective of whether the sales representative’s employment is terminated before the sale is actually finalized;
• Any employment contract provision that provides to the contrary is void; and
• Failure to pay any such commission earned is a wage violation that could result in both criminal and civil liability.

Takeaways for Employers

Unfortunately, the Washington Legislature did not specify whether the amendment applies only to contracts entered after the June 11, 2020 effective date. Similarly, the Legislature did not specify whether the amendment applies only to sales transactions completed after June 11, 2020. As a result, the complicated issue of the amendment’s retroactive application was left to Washington's courts to decide through litigation.

In light of this uncertainty, DWT recommends that companies that employ wholesale sales representatives in Washington take a proactive approach to ensuring compliance with the new law in the immediate future. Specifically, we strongly suggest that you contact DWT’s attorneys before the law comes into effect on June 11, 2020. DWT's attorneys can review your employment contracts to make sure they comply with this new law. If necessary, DWT's attorneys can also help you revise your contracts to be compliant before the law comes into effect on June 11, 2020.