James H. Moss is a Colorado attorney who has worked with bicycle and outdoor industry businesses for years.
Dealer, Vendor, or Manufacturer agreements have become a necessary evil. There are only a few reasons why they are needed. For the manufacturer, they are supposed to make sure the manufacturer gets paid. From the retailer side, they provide the retailer with the backup knowledge and support to sell the product comfortably.
I doubt any vendor agreement has assisted any manufacture in getting paid. If a retailer is going under, the bankruptcy court does not read the contracts, it only says, "Get in line." (There are some options if financing is involved, including extended payment plans, if the agreement is written correctly and state law allows repossessing goods.)
From there, the attorneys take over. I know, I am one. (For more evidence of lawyerly proclivities, read this MIT study.)
At some point, a dealer agreement crossed the desk of an attorney who started thinking about every possible reason why something could go wrong between the manufacturer and the retailer. This one-page I-got-your-back-if-you-got-mine agreement exploded to cover possible claims or litigation that still have never occurred. The manufacturer, able to afford an attorney because this one agreement might apply to a thousand retailers, throws the agreement at the retailers who must hire 1,000 attorneys to understand or fight over the agreement.
I suspect, would even bet, that few retailers know what the dealer agreements even mean.
Rick in his article, It's time for a fresh look at dealer agreements, hit on a few bigger issues that I would like to add my thoughts to.
NDAs
Several changes have occurred in the law concerning NDA or non-disclosure clauses in all contracts. I suspect few dealer agreements have been modified to conform to these laws. I also suspect that many dealer agreements are keeping the old ways in the agreement in a prayer that the retailer won't know or understand and can be intimidated into believing whatever the manufacturer says. Those manufacturers have forgotten that selling bikes and accessories is a two-way street. Money does not flow to the manufacturer unless the dealer likes the manufacturer and buys its products.
First, an NDA can't bar you from talking to an attorney. Any agreement at any time before signing or post-signing can be shown to your attorney without fear of retribution, or cancelation of the agreement. This right is ingrained in the Constitution and most state laws. Besides, unless the dealer told the manufacturer they showed the agreement to their attorney, no one would ever know because of lawyer-client confidentiality. A physician once told me there are two people in the world to whom you should always tell everything to and do so honestly: Your physician and your attorney. He was and still is right. There is no agreement, no act, nothing, that you cannot tell to your attorney. Always take advantage of that.
Second, non-disclosure agreements have been outlawed or modified in many states or have been restricted by several federal agencies on when and how they can be used. However, what happens or has been changed in your state may not matter. The issue in the agreement is what law will be applied to the agreement to interpret it. If the agreement says it will be interpreted under Wisconsin law and you know those clauses are void in California, it may not matter since Wisconsin law will be used to make any determination about the agreement.
Nineteen states have declared NDAs unenforceable if signed as part of sexual misconduct in the workplace settlement. Many states have also outlawed or restricted the use of NDAs in several other areas, mostly employment or human resource areas. Several states such as Washington go further than that and ban them in about all situations. These laws are growing and extending to other areas of the law. The general argument is: how and why you are successful as a manufacturer is confidential. But everything is not.
Negotiate
Every contract is negotiable. If you don't like the terms, let the manufacturer know and negotiate for changes. Changes can be in how the contract is written such as more co-op advertising dollars or a reduced price, just not removal or changes to a paragraph.
Many manufacturer or vendor agreements also contain clauses that violate the law. I've written agreements for manufacturers and have been frequently asked to include unenforceable clauses. I won't do it. Finding an unenforceable clause is the easiest way to tell that the agreement was not written by an attorney, but borrowed by the manufacturer from someone else. That knowledge will make it easier to negotiate because the manufacturer does not know what they are writing or asking you to sign. (The same occurs in agreements between their sales reps and manufacturers. However, the sales rep has a bigger club because if the agreement goes too far it makes the sales rep an employee, not an independent contractor.)
One big no-no are agreements that state you had to buy X dollars of accessories if you purchased the main product you wanted to sell. If you don't want the accessories, you cannot be forced to buy them. Those clauses violate the Sherman Antitrust Act and the regulations surrounding the act.
Never hesitate, no matter what the agreement says, to consult with an attorney about any contract you are signing. It might keep you out of trouble, it will probably make your business run a little smoother, and should always be done.
This does not mean all vendor agreements are bad. In this era, a written relationship is a good thing. It defines who is going to do what, when and for how much. It provides a path for both parties to follow in dealing with each other. If written properly, it also helps resolve possible misunderstandings or disputes. Don't reject dealer agreements outright, one might save you. Just read and understand what you are signing and if you do not understand, spend the time and money to ask an attorney to explain it to you.
Always: Understand what you are signing. Don't be rushed, don't be intimidated, do not be scared. You might not change the agreement but at least you will know what is expected of you and why.
You can schedule an appointment with Moss on Calendly.
