This article is written by Kartikey Kapoor who is pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.

Introduction

One may hear the term ‘sales employment agreement’ and involuntarily the cerebrum will provide references of Leonardo Di Caprio from the Wolf of Wall Street or Ranbir Kapoor from Rocket Singh: Salesman of the year.

As enriching and exciting the job sounds, it bears with itself a certain set of duties and responsibilities. These duties and responsibilities may very well have been in the form of unwritten agreement or oral handshakes in the early 1990s or 80s, but with the progression of time the need to define the aforesaid duties and responsibilities in black and white is surely on the rise in the 2020’s.

In the hereinafter referred article, we will try to decode the broad and nuanced ‘terms’ mentioned in a Sales Employment Agreement.

What is a Sales Employment Agreement?

A sales employment agreement is a binding agreement between the employer (company/individual) who wishes to engage or employ an individual (prospective employee or prospective individual contractor) to act as sales representative for the employer.

A sales employment agreement is a ‘species from the ‘genus’ of ‘Employment Agreement’ i.e, a specialised category of employment agreement. To provide a brief understanding, an employment agreement is nothing but a contract describing the rights and obligations of the Employee and the Employer for the course of the employment.

Though an Employment Agreement is nowhere defined under Indian Contract Act, 1872 (“ICA”) but can still be interpreted by certain sections of the ICA; Code on Wages, 2019; Shops and Establishment Acts (State-specific); Payment of Gratuity Act, 1972; Articles of Indian Constitution etc. 

The sales employment agreement is drafted to set out rights and duties or terms and conditions for both the parties before the initiation of the employment period by the sale representative. These ‘terms and conditions’ range from: 

• JD (Job Description);
• Working hours;
• CTC (Cost to the Company);
• Commission/ Appraisal cycle or/and;
• Fringe Benefits of the sales representative.

Who are the parties to the agreement? 

 The sales employment agreement will be executed between two parties:

• The employer, and
• The employee/individual contractor who will be appointed as the sales representative for the employer.

Note: The parties and the no. of people signing the agreement are different terminology, and can resonate between human resource manager, immediate supervisor, or the owner of the company depending upon the organisation structure and policies.

Before signing the agreement, the parties will need to satisfy the competency provisions provided under Section 11 of the Contract Act, 1872 and the establishment of a valid agreement is contingent on fulfilling the essentials of a valid contract. 

Why is a sales employment agreement given its due importance? 

The reason to have a sales employment agreement in place is quite similar to need for executing an employment agreement. As an employment contract is a legally enforceable document (condition precedent of getting it appropriately stamped in accordance with Section 17 r/w Section 2(14) of Indian Stamp Act, 1899) stipulating within it the foundation of an employer employee relationship. The sales employment agreement is also a bilateral agreement which becomes legally enforceable and provides damages in cases of breach of the ‘terms and conditions’ stipulated in the contract. In addition to recording the aforesaid legal intention, the sales employment agreements also recognize the rights, expectations, and obligations of both the employer and the employee and, hence providing clarity. 

What purpose does this kind of agreement solve?

An employment agreement is drafted to tackle the issues of white-collar crimes and breach of contractual covenants. Today we are quickly moving towards a knowledge-based economy, in turn, giving rise to white-collar employees. This rise is coupled with complex set of disputes between the employees and employer ranging from: 

• At will termination;
• Non-solicit and non-compete covenant breach;
• Non-compete or breach of confidentiality post-termination.

To reduce the legal cost in case of a dispute, it is highly advisable to have an employment agreement in place. Hence the nature of work done by a sales representative involuntarily demands a sales employment agreement drafted and executed within the frames of law.

Important clauses that should be incorporated in such an agreement 

Certain key clauses required under a sales employment agreement are mentioned as follows: 

Job Specific Terms 

• Job Title: What will be the job title of the employee? Will the employee be called as a “Sales representative” or “Sales Manager” or “Sales Executive” or “Travelling Sales Executive”? Each terminology carries with itself different set of duties and roles assigned to the sales representative.
• Job Description or Description of Duties: At times referred to as JD, the present clause shall describe positive and negative covenants imposed on the sales representative. One should be aware that it is not adequate, just to assign a title for the job, as title of an employee are at times reflective in nature. The titles portray rather than conveying what the duties of the employee comprises of. 

Job description clause is synonymous of obligations imposed and come handy during disciplinary proceedings, termination, or while deciding the CTC in regard to the employee. The present clause provides references to the kind of employment sought after by the employee and the employer. Whether the sales representative is in working in temporary capacity i.e, commission based with no regular employee benefits (or fringe benefits) like paid leaves, or the employment is of permanent in nature with various benefits like gratuity, paid leaves etc granted to the employee.     

Closest examples: As what all products/service the employee will the sales representative be dealing with or the method that sales representative should preach during sales pitch.

A way to spot a poorly drafted JD clause would be to look for the ‘open ended’ clause structure e.g, ‘the employee shall perform such duties and functions that the sales heads of the company shall bestow on him/her/they.’  In the quirk of looking gender neutral, the clause is open-ended in nature. 

Certain loopholes that arise from the wording can be: 

• What is the product or service that the company deals with?
• What are the duties and functions of the employee? Will the employee be made to do clerical and unrelated sales work also?  
• What if the position of the sales head is vacant in the company? What is the recourse then or POA (Plan of Action)?
• Will the employee report to both the ‘sales heads’ of the company? Who carries superiority in case of a dispute? 

Unless the above-stated clause is cross-referenced with company policies or defined under a schedule, a poorly drafted employment agreement possesses all the essentials for baking a potential labour law dispute. This will then churn higher more legal cost along with maligning goodwill of the company.

• Compensation or CTC: A sales representative compensation/cost to the company runs on two-fold mechanism: 
  • Regular/base salary: This remuneration provides a sense of security to the sales representative. The minimum amount of income which the sales representative will net per cycle (as defined under the terms of the agreement or company policies) needs to be stipulated under the employment agreement. The present clause is generally stipulated on the precedent condition of meeting the monthly/quarterly/yearly quota of the company.
  • Commission or Bonuses: Few people who enter into ‘sales’ are charmed by the ‘no cap’ commission or bonus clauses in their employment agreements. The present clause should focus on the percentage (%) of income the employee would be able to encash on a given no. of sales confirmed. These clauses can be formulated to record if the commission or bonus provided will be on the basis of
    • No. of customer acquired from the sales or 
    • No. of overhead/extra sales made in comparison to monthly/quarterly/yearly sales quota or
    • No. of services/sales made within a given time period in comparison to the colleagues’ performance etc. 
• References to Company Policies
• • A sales employment agreement cannot in itself be a complete and sole document to encompass the necessary information required by the employee to perform his/her functions. Hence it is considered necessary to contain a reference clause so that silence of certain terms and conditions do not give rise to a loophole waiting to be exploited. 
• Restrictive Covenants
• • Non-Compete and Non-Solicit clauses 
    • Section 27 of the Indian Contract Act,1872 prima facie declares any agreement barring an individual’s fundamental freedom of right to trade and profession, guaranteed under Article 19(1)(g) as void, pro tata, except in the case specified in the exception. But the apex court in Niranjan Shankar Golikari vs the Century Spinning and Manufacturing Company Ltd. Ltd.(1967 AIR 1098) and various other precedents has allowed the enforceability of these negative covenants in the light of ‘public interest’, subject to the following principles: 
      • Reasonable and necessary for the purpose of trade
      • Not excessively harsh or 
      • Conscionable nature of these covenants
    • Under a sales employment agreement, it is advisable to include non-compete clauses which are drafted to look reasonable in nature and do not blatantly depict abuse of position by the employer. As courts have from time and again looked out for the interest of the employee who possess a lower bargaining powers during the execution of employment agreements. A non-compete clause under a sales agreement clause will act as deterrent for the sales representative to open up a shop just around the corner and exploit the trade secrets and skills acquired during his employment.
    • Calcutta High Court in Embee Software Pvt. Ltd. vs Samir Kumar Shaw & Ors. (AIR 2012 Cal 141) had noted the need of non-solicit clause to protect clients’ information and held that “…acts of soliciting committed by former employees take such active form that it induces the customers of the former employer to break their contract with the former employer and enter into a contract with the former employee, or prevent other persons from entering into contracts with the former employer cannot be permitted”
• Termination
  • It is said that termination of an employee is the hardest form of goodbye as it has the potential of boomeranging itself into a full-fledged court battle for wrongful termination. The underlying relationship between an employee and employer will set forth the need for establishing a proper termination procedure that complies with state and national regulations alongside principles of natural justice: 
    • Nemo Judex In Causa Sua.
    • Audi Alteram Partem.

It becomes necessary for a termination clause in a sales employment agreement to contain clauses drafted in accordance with respective statutory regulations, e.g,

• Delhi Shops and Establishment Act, 1954 guarantees 1 months’ notice period to an employee, employed or a period of 3 or more months in the present establishment.    
• Whereas in Bihar Shops and Establishment Act, 1953 guarantees 1 months’ notice period to an employee, employed for not less than 6 or more months in the present establishment

Sample Sales Employment Agreement 

Sample Sales Representative Agreement

This Agreement for Sales Representative [“Agreement”] shall be executed on …………[date] of ……… [month & year] [company] 

BETWEEN:

…………………………… [company] whose registered office is at ……………………………

[address, place] and registration no. is……………………………, represented

by ………………………………………………………………. [name, position] (hereinafter referred to as “the Employer”)

Mr./Ms. ……………., of legal age, ……………………….., Identification Number…………., registered address ……………, acting on his/her own behalf (hereafter shall be referred to as “Agent” or “Employee).

THE PARTIES AGREE AS FOLLOWS:

The Parties hereby in pursuant of the present agreement agree:

1 SERVICES

1.1 The Company shall engage Sales Representative to sell and promote as its authorized

……… [temporary or permanent] the following products or services of the Company, which may be changed by the Company for time to time:

……………………………………………………………………………………………………………………………………………………………………………………….(the “Products”).

1.2 The Company shall, be in its sole discretion, able to determine the sales price and terms of sale for the Products.

1.3 Sales Representative, except as directed by the Company, shall determine the method, details, and means of performing the services described above; however, the Employee agrees to devote a minimum of……………….hours per week to said services.

1.4 Sales Representative also shall periodically or at the Company’s request, submit documentation of the services performed by the Sales Representative on behalf of the Company pursuant to this Agreement. From time to time, the Company may also establish performance goals for Sales Representative, and the failure to reach such performance goals may be cause for termination of this Agreement.

2 TERRITORY

2.1 The Sales Representative will sell and promote the Products in the following geographical area, which may be changed from time to time by the Company:

…………………………………………………………………………………………..[parts of Indian territory where the Sales Representative will promote/sell the Products]

3 COMPENSATION

3.1 For services provided, the Company will pay Sales Representative the following commission percentage: ……. % of the Sales Representative’s invoiced sales price

3.2 Payment of the Commission by the Company to the Sales Representative shall be due

……….. days after receipt of payment by the Company of the underlying invoice.

4 LEAVE POLICY

4.1 The Employee is entitled to ………… (…….) days of paid casual leaves in a year and ……………._ (…………….) days of sick leave. In addition, the Employee will be entitled to ……………. (__) public holidays mentioned under the Leave Policy of the Employer. 

4.2 The Employee may not carry forward or cash any holiday to the next holiday year. c. In the event that the Employee is absent from work due to sickness or injury, he/she will follow the Leave Policy and inform the designated person as soon as possible and will provide regular updates as to his/her recovery and as far as practicable will inform the designated person of the Employer of his/her expected date of return to work.

5 REPRESENTATION AND WARRANTIES

5.1 The Company has offered you employment relying on the representations and warranties made by you as set out below: 

1. He/she has not been convicted for any offence and/or does not have any legal proceedings pending against him/her involving moral turpitude before any courts of law in the country and that he/she is not restricted by way of any order/directions from any statutory authorities to be employed with the Company. 

2. He/she has carefully read and fully understands all the provisions of this Appointment Letter. 

3. By entering into this Appointment Letter or performing any of the obligations under it, he/she will not be in breach of any court order or any express or implied terms of any contract or other obligation binding on you. Further you undertake to indemnify the Company against any such claims, costs, damages, liabilities, or expenses which the Company may incur if you are in breach of any such obligations. 

4. In the performance of your obligations, he/she will not utilize or make available to the Company any confidential or proprietary information of any third party or violate any obligation with respect to such information; and 

5. He/she has never been suspended, censured, or otherwise been subjected to any disciplinary action or other proceeding, litigation, or investigation by any state or governmental body or agency or any regulatory authority or self-regulatory organization. 

6. He/she is fully aware of his obligations under this Agreement including, without limitation, the reasonableness of the length of time, scope and geographic coverage of these covenants, and g. the information/ documents submitted by him/her in relation with his employment with the Company are true, accurate and correct and not misleading in any manner.

6 CONFIDENTIAL INFORMATION

6.1 You understand that during the course of your tenure that you will have access to Confidential Information of the Company. You shall be obligated to use the Confidential Information only for the purpose of performing your duties. You shall at times, during the term of your employment and at all times, thereafter, keep confidential and secure the Confidential Information. The term “Confidential Information” as used in this Appointment Letter means any data, information, or knowledge about the Company or its customers, prospective customers, and/or suppliers that you have access to and is not generally known or available to the public and which is or should reasonably be understood to be confidential or proprietary information and will include but not be limited to:

a. the terms of this Agreement;

b. the Company’s business or operational plans or activities, existing or contemplated markets, advertising initiatives, methods of operation, products, or services;

c. the Company’s financial projections, including but not limited to, annual sales forecasts and targets and any computation(s) of the market share of customers and/or customer prospects;

d. the Company’s dealers, channel partners, suppliers, sellers, customers, prospective customers, or logistics data;

e. the Company’s customer, dealer, channel partner or supplier lists, cost of goods or services, profits and losses, budgeting, past or future sales, or financial information;

f. the account terms and pricing upon which the Company obtains products and services from its suppliers;

g. the terms and pricing of services rendered by the Company to its customers;

h. the Company’s existing or contemplated designs, technical systems, models or platforms, formulas, research, notes, or analytical data;

i. the Company’s employees, salaries, job related functions, duties or responsibilities; and

j. the Company’s Intellectual Property.

You accept and acknowledge that all application data, documents, written presentations, brochures, drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, e-mail, electronic databases, maps, drawings, architectural renditions, models and all other writings or materials of any type including or embodying any Confidential Information shall be deemed Confidential Information and be subject to the same restrictions on disclosure applicable to Confidential Information pursuant to this agreement. You accept that this obligation to not disclose Confidential Information will remain in effect and survive the termination of this agreement.

7 Non- Solicitation of Customer and Vendors 

7.1 You accept and agree that during the term of your employment with the Company and for [1 year] after the termination thereof, regardless of the reason for the employment termination, you will not, directly, or indirectly solicit or attempt to solicit any customer, prospective customer, supplier, representative, agent or business contact of the Company.  You acknowledge that the above restrictions are considered reasonable for the legitimate protection of the Confidential Information, business, and goodwill of the Company.

8 Notice Period for Termination 

8.1 If at all circumstances arise wherein you prefer to leave the employment with the Company, then you shall be under a strict obligation to submit a resignation providing a notice period of 1 (One) Month with your reporting manager and/or requisite salary in lieu thereof and follow the exit formalities as would be applicable as per the policies of the Company at that particular point of time. The Company may terminate your employment with a prior notice of 1 (One) Month to you and/or in lieu of salary thereof.

…………………………..(name)

Place: 

Date: XX-XX-XXXX

Conclusion 

A Sales Representative Agreement carefully captures the employee-employer relationship in black and white ink. The need for such an agreement is always recommended, and more so in the post COVID-19 world. As the demand for promoting unique products in the FMCG or Consumer Durable or Industrial Raw Material or Investment Good sector rises, a carefully and well-drafted sales employment agreement helps the employee or employer reduce the legal risk attached to it.

Being formulated from the genus of “employment agreement” a lot of clauses present, shall be standardised in the sales employment agreement as well. 

In the present manuscript, I have tried to bring together certain nuanced clauses and provide a rudimentary insight for the readers in regard to: 

• Employee-Employer relationship.
• Purpose of such agreements.
• Job Description/JD clauses.
• Non-Solicit & Non-Compete clauses.
• Judicial and Legal standing for it.
• How a Sales Representative Employment Agreement looks like.

I would close the present manuscript by quoting my marketing professor that would be quite relatable for people connected to the sales industry: 

“Sales is never a numbers’ game; it is always a people’s game. Hence, to win the market you must win the people first.”

---

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.

LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join: