The Franchise Memorandum

A federal court in Tennessee determined that a binding contract existed between a sales representative and CWS Powder Coatings Company governing the percentage of commissions to be paid to the representative for sales to Premier, a CWS customer. The court also concluded, however, that there was no binding agreement requiring payment of commissions on sales to Carrier, a prospective customer at the time the alleged agreement was formed, who began purchasing from CWS nine years later. Reaves v. CWS Powder Coatings Co., No. 3:22-cv-0158 (M.D. Tenn. May 24, 2023). Reaves alleged CWS breached an oral sales representative agreement when it paid her one percent commission on all purchases by Premier after paying her five percent for a period of time. Reaves also claimed CWS breached a separate agreement when it failed to pay her any commission on sales from Carrier or hire her to service the account. CWS argued that Reaves waived her right to the five percent commission by accepting payments of one percent. As to Reaves’ claim that she pursued Carrier for seven years but that CWA refused to pay her commissions once Carrier became a customer, CWS argued that Reaves was not entitled to commissions because she did not procure Carrier’s business.

The Court determined that the parties had an enforceable oral contract obligating CWS to pay Reaves a five-percent commission on Premier’s purchases and that a fact-finder could determine that CWS breached that agreement by paying Reaves a one-percent commission. The Court concluded that whether Reaves intentionally waived her right to the full commission when CWS began paying her one percent for Premier purchases presented a question of fact to be resolved at trial. As to the breach of contract claim related to purchases by Carrier, the court determined that the oral agreement between Reaves and CWS was too vague to be enforced and dismissed the claim. The court reasoned that even if it could be enforced, Reaves did not procure Carrier’s business and the agreement that Reaves would service the account was an at-will employment agreement and terminable by either party. The court disposed of Reaves’ equitable claims pertaining to Premier because an enforceable agreement existed between the parties, but it permitted Reaves’ equitable claims concerning Carrier to proceed to trial because no contract existed concerning that Carrier and CWS failed to address those claims in its motion.