Sales Law & Ethics – Topic 4
I. Why Sales Ethics are Important
II. Common Legal Issues in Sales Management
III. Some Specific Laws Applying to Sales
I. Why Sales Ethics are Important
If a customer does not believe that you or your sales force is telling the truth, it will be next to impossible
to make the sale to that customer. Suppliers, customers and competitors all meet at trade shows and have contacts
during the rest of the year. If your actions are perceived to be unethical, people will not do business with you.
What goes around, comes around.
Firms are not unethical, people are unethical. If it is unethical if a single person does something, then the
same actions are equally unethical for a firm, industry or government. Firms that operate in a shady fashion are
also more likely to be sued or investigated by the government. Both are very costly.
Superiors set the moral climate for the firm. The decisions of sales managers speak more about ethics
than mere words. Managers are also legally responsible in many cases for actions of subordinates that are illegal.
A. Primary Duties of the Firm - The primary duties of the firm are: 1) to follow the law and 2) to make
money. If a firm does not stay in business, all of the employees will lose their jobs and the stockholders will lose
their investment. This will cause emotional distress and financial hardship on their families and communities.
Unrealistic sales and profit goals can lead to unethical selling and billing.
B. Firms are responsible for the actions of their employees - If your employee lies on a contract, breaks
the Sherman Antitrust Act or takes other actions that are illegal, the firm is liable for damages. How can a firm
avoid legal difficulties from their employees?
1. Have a clear job description. When employees fail to follow the legal rules of a job description, they
can be fired for cause. Accurate and complete job descriptions lay out the boundaries of what is and is not
acceptable. Good job descriptions can avoid a lot of problems before they become problems.
2. Train your employees in what is illegal and unethical - Clear guidelines on illegal and unacceptable
behavior can avoid misunderstandings that can cause significant problems.
C. Suggestions for ethics training for employees
a. The golden rule
b. Would you be embarrassed if this was printed in the paper or told to your friends and family?
c. Suggested checklist
1. Recognize the dilemma.
2. Get the facts
3. List your options.
Are they legal?
Are they right?
Are they beneficial?
4. Make your decision.
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D. Common Non-Issues
1. Competitor analysis
2. Patent and product examination
3. Purchases in test markets
4. Beating a product to market
5. Pricing someone out of business
6. Gaining market power and raising prices.
II. Legal Issues in Sales Management
A. Hiring, Firing and Compensation - It is illegal to discriminate on the basis of age, race, sex and many other
factors in this country. The Americans With Disabilities Act poses special problems.
Firms can avoid a lot of trouble if they have clear, written, personnel standards that are consistently
applied. Even more trouble is avoided if these standards are then related back to job performance.
Example: Fewer blacks get college degrees than whites. Having a requirement for a college degree could
land you in court on an EEOC suit if having a college degree is not related to job performance. However, if the
firm clearly related having the degree to performance on the job, a lot of problems could be avoided.
Keep good records. Have clear standards. Evaluate employees equitably. This will protect your firm
from many legal problems as well as helping to motivate your sales staff (explain).
Annual, signed (both manager and employee) performance appraisals can avoid a lot of problems.
Sales compensation is less of a problem due to pay for performance.
Often top management must force lower level managers to do performance appraisals.
B. Job Recommendations for former employees
C. Should you hire your competitor's salespeople?
D. Expense accounts for salespeople.
E. Special problems with the Americans with Disabilities Act
F. Gifts/Entertainment for buyers.
IRS rules are that only $25 in business gifts can be deducted per client per year. Does not cover meals and a host
of other spending. In some European countries, companies can directly deduct cash bribes as a business expense including bribes to government officials. Also, discuss difference in gifts for private and public sector officals.
G. Dating/marriage between employees.
H. A Company Can Have Stricter Standards than the law.
III. Some Specific Laws Applying to Sales
A. Price fixing or monopolies. [Sherman Antitrust Act, Robinson-Patman Act etc...]. Tying agreements are an
especially difficult issue in this area.
B. Foreign Corrupt Practices Act.
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C. Fraud and misrepresentation. You cannot lie about product performance either for your own firm or about
competitors firms. This includes company performance as well as specific brand performance. Goes both for
what is in writing and what is said.
D. Bait and Switch.
E. Breach of Contract – First, everything cannot be put in writing. Second, do you want a “competitive
advantage” of having the most cut-throat legal team? Third, does your sales staff and your company stand behind
their products and service – or not?
F. In Conclusion - It is not necessary that an employee or manager violate the law or written company policy to
be terminated or demoted by the company. Failure to make financial targets is good enough. Doing something
stupid or embarrassing is also enough to get fired.
I’m not discussing union shops. If everything within the firm is done on a written contract with a
procedural grievance process, it becomes very difficult for the firm to remain flexible and nimble in the face of
competition. Private sector unionization has become very rare in the USA for good reason (outside of some
natural monopolies). Operating under a union contract in the private sector is currently so rare (especially with a
sales force) and so different from a non-union shop that I’m omitting this.
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