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Sales rep agreements

Companies can be held liable for the acts and omissions of their sales reps.

The following checklist, using Company A as the party hiring a sales rep, highlights the issues and dangers to consider.

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Specify the contracting parties. If the sales rep is a limited liability company, consider whether the agreement should bind any individuals in total or for selective clauses such as restraint of trade, confidentiality and intellectual property protection
The products – specify the products covered by the agreement and whether those under development and which may be developed in the future are also covered
Territory and markets to be covered by sales rep and any specific customers that are off limits to the sales rep
Exclusivity – specify any exclusive rights to sell specific products, in specific territory and for specific markets. Do not consider granting exclusivity to a sales rep until the relationship is established. The simplest solution is having a non-exclusive sales rep who earns through their performance. If they do well, Company A will have no incentive to appoint other representatives
Compensation – including base commission, performance incentives, rights to draw against commission and details of when compensation will be paid
Term of the agreement – generally sales reps work at the pleasure of the party engaging them. A six-month trial period is ideal or a one-year term with automatic right of renewal unless either party opts out by giving 90 days notice before any anniversary date
Price of products – prices are normally set by Company A
Restraint of trade – specify whether the sales rep can act for other companies selling the same products in the same market and territory and whether the restraint applies during and/or after the term of the agreement
Performance – insert performance criteria if the term of the agreement is longer than one year. These give Company A grounds for termination before the expiry date of the agreement
Expenses – any reimbursement from Company A to the sales rep
Reporting – specify the type of reports the sales rep is to supply and how often
Scope of Authority – it is essential for Company A to protect itself by including standard clauses that limit a sales rep’s power and authority to act for their principal
Intellectual property – specify whether the sales rep will help Company A develop new products and ensure any rights to ownership or shares are covered in the contract and not open to future negotiation
Confidentiality – a confidentiality clause may be needed if the sales rep has access to confidential information
Operational issues – these are critically important but not normally enshrined in a legal contract. You may wish to include a generic clause covering the services to be supplied by the sales rep, mention specific services the sales rep will provide and/or include a basic outline of how an order is processed.
Use standard clauses to specify absence of an employment relationship and freedom to contract