A Bad Rep? They sell your products, but their contracts can sell you down the river.
Opinions expressed by Entrepreneur contributors are their own.
Whether they are employees or independent contractors, salesrepresentatives can expand your market and boost the bottom line-orthey can cost you a bundle in commission disputes and lost sales.You can avoid those problems with well-drafted sales representativeagreements, says James B. Sherman, an attorney with the law firmWessels & Pautsch PC in Min-neapolis. Sherman, who specializesin representing management in labor and employment cases, sayshe's amazed at how frequently companies fail to clearly definethe terms of their relationships with sales reps at the outset andthen run into problems later.
"A well-drafted rep agreement is critical," saysSherman, adding that companies in many states face severepenalties, including attorney's fees and punitive damages,should a sales rep prevail in a commission dispute. The key pointsany rep agreement should cover include:
The rep's duties.Clearly describe what you expect the rep to do to avoid anyperformance-related disputes.
Commission terms.Specifically define how and when commissions are earned andcalculated, when they're paid, whether the sales rep isexpected to assist in collecting any money due, whether delinquentaccounts affect commissions and when commissions will end. Shermansays many states accept a doctrine of "procuring cause,"which means that if someone demonstrates he or she was responsiblefor bringing you a customer (the procuring cause of the business),then he or she gets credit for all future business-which couldtheoretically mean that you would have to pay commissions to thatperson forever, unless your agreement says otherwise.
How the relationship can beterminated. Specify how either party can end the reprelationship and what your mutual obligations and liabilities are.Include issues like notice, severance and return of companyproperty.
Restrictivecovenants. On this topic, many business owners tendto think in terms of noncompete agreements, but other importantrestrictive covenants include agreements of confidentiality(preventing the disclosure of confidential company information) andof no-solicitation (preventing sales reps from calling on yourcustomers if they go to work for someone else). It could bebeneficial to make these covenants part of your contract.
Choice-of-lawsprovision. Indicate which state's laws governthe agreement-and be sure the agreement meets the legalrequirements of that state.
Jacquelyn Lynn left the corporate world more than 13 yearsago and has been writing about business and management from herhome office in Winter Park, Florida, ever since.
Contact Source
- Wessels & Pautsch P.C., (763) 595-7100, www.w-p.com
