By Neil Ende, Managing Partner at Technology Law Group
This is Part I of this article.
As telecom attorneys, there are many terms in agent agreements that get under our skin. Among the most disturbing are terms that impose unilateral obligations on a master agent or a subagent where: (i) the agent’s performance is entirely dependent on—or at least within the control of—the providing party; and (ii) the providing party has no corresponding obligations. These terms often take the form of quotas or minimum commitments. Even worse, most of these terms allow the providing party to entirely stop paying compensation if the quota or commitment is not reached, regardless of the amount of the miss or the cause.
Now, we’ve heard all the arguments and justifications that are presented for quotas: They are necessary to ensure that the agent continues to work or that the relationship makes economic sense. In our opinion, these arguments are largely unfounded and, in any event, the penalties are generally so punitive that the claimed rationale does not justify the existence of the quota.
So, what is an agent to do? First, just say no. When you are pressured, say no again and again and again. Despite what you are told, agent agreements are modified every day and our clients rarely sign agreements with quotas and they never sign agreements that contain a unilateral quota obligation. You have much more negotiating power than you think, so you should not be shy about demanding fair and balanced agreements. If you cannot achieve a fair agreement—especially on core issues like quotas—it is generally a sign that the relationship is not a good one and that you should cut your losses now and move on.
If you feel the need to agree to some form of quota, there are steps you can and must take to limit your risk and exposure. First and foremost, you should never accept a unilateral quota obligation.
Unilateral quota obligations are applied only to the agent without any corresponding obligations being imposed on the provider. Thus, while a unilateral quota obligation requires the agent to meet a dollar sales commitment, no corresponding obligation is imposed on the provider to insure that the agent has a sellable product. Most of these agreements allow the provider to increase the rates at which the services are provided—even to the point at which they are non-competitive—while leaving the agent’s sales quota intact. Most agreements are also silent, at best, regarding how or when services will be provisioned, the quality of the services or the customer service.
Unlike unilateral quota obligations, bilateral quota terms properly recognize that agents can only sell services that meet accepted quality standards, are competitively priced, are provisioned in a timely manner and that are supported by quality customer service. Bilateral quota terms also properly recognize that you cannot sell—and thus should not be committed to sell—any specific quantity of services that do not meet each of these requirements.
And finally, any agreed penalty should only be available where the failure to meet a quota is not due to any conduct or failure to act by a provider and is the result only of conduct or a failure to act by the agent.
Next week: Part II, on the critical terms to consider if your agreement has a quota obligation.
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