Mark Pestronk
Q: Our agency has an independent contractor who we would really like to get rid of. We suspect him of depositing client funds in his own bank account, which is a practice that we prohibit. What's the best way under the law to terminate our relationship? Do we have to provide a reason? After termination, would he be entitled to his split of any commissions that come in for sales that he made while the agreement was in effect?
A: Your questions should all be answerable by referring to your agreement with the IC. If the agreement does not cover all of these points, you need a better agreement.
Ideally, your IC agreement should allow you to terminate it at any time on a specific number of days' notice, such as 30 or 60 days. Even more ideally, you should also retain the right to terminate immediately (or on very short notice, such as 10 days) for suspected fraud, embezzlement or breach of the agreement.
If your agreement runs for a fixed period, such as a year, and does not allow for any termination, you can probably still terminate it if the IC breaches the agreement. For example, if your agreement specifically prohibits the IC from depositing funds in his own bank, then the IC breaches the agreement by doing so.
On the other hand, if your agreement does not allow for any termination, and if it does not prohibit the IC from depositing funds in the IC's own account, then you are probably stuck with a no-termination contract. In that case, there is probably nothing you can do except to negotiate your way out of the agreement.
As to whether you have to give a reason for termination, here are the answers: If your agreement allows termination after a fixed number of days' notice and does not mention breach, then you do not have to give a reason, although I understand that you might want to do so as a matter of fairness. However, in such cases, the best practice is not to state any reason, as you thereby avoid disagreements and potential lawsuits, even if they are without merit.
However, if your agreement provides that you may only terminate for breach, then you must state what the breach was. If your agreement further allows the IC to cure the breach within a fixed number of days, and if the IC does so, then you cannot terminate for breach.
The agreement should provide for what commissions the IC is entitled to after termination. In leisure sales, commissions may come in months or even years after the IC departs, so you would typically stipulate whether and for how long the IC would be entitled to his share.
If your agreement doesn't cover this issue, you are forced to rely on common-law principles for commissioned salespeople. Generally, the IC is entitled to his share if the sale was complete before termination and all that remains is to wait for the supplier commission.