B. Duty of Loyalty and Good Faith

Courts generally impose a duty of loyalty and good faith upon employees in all industries. These duties exist throughout the worker's employment and are also present when the employee changes jobs and joins a new company. The following points explore such duties in greater detail.

Duty Not To Exceed Authority

A saleperson's or employee's authority is usually defined by the terms of his/her employment contract with the company. If the person exceeds this authority, he/she is responsible for the consequences of the unauthorized acts.

For instance, Jonathan, a manufacturer's representative, quoted a price for machine parts that was below the list price in order to obtain a large order. If his hopes materialize, Jonathan may be required to pay the difference between the list price and the price he quoted or risk being summarily fired. Thus, sales staff should never promise discounts that are lower than the quoted company rate unless specifically authorized to do so.

TIP: The issue of whether the company is stuck and "must make good" on its salesperson's promises is not always clear cut. For example, if a customer is persuaded to buy a product because of a salesperson's promise that the goods can be returned, the company will not be liable if the buyer should have known that the salesperson had no authority to make this kind of "consignment contract." Whether a salesperson has such apparent authority to bind the employer depends on the particular facts of each case; for example, if from past dealings a customer knows that the salesperson has no authority to substantially vary the usual contract terms, and it is not customary in the industry for the manufacturer to accept returns except in the case of defective products, then the buyer will not prevail because it should have checked out the new terms with the company before going ahead. This is especially true when companies present customers with written agreements stating that "all sales must be confirmed at our home office" or words of similar effect.

Duty Not To Work For A Competitor

A salesperson can inform his customers that he intends to leave his job and work for a competitor. However, an employee cannot work for a competitor while still employed by the present company (or maybe even thereafter if a valid restrictive covenant in an employment contract was signed). In one case a salesperson told customers that he intended to leave his company to work for a competitor. Although this was perfectly legal, he overstepped his authority by distributing the competitor's catalogs to these customers while still employed with the old firm. This, the court ruled, was improper; when he was terminated by his former company and sued, the individual was required to pay a considerable amount of money in damages for his disloyal actions, including repayment of wages and commissions received during the period in question.

An employee is under no obligation other than his duty to give loyal and conscientious service to an employer while in its employ. A salesperson's freedoms include the right to advise customers that he/she is going to quit and work for a competitor even while still working for his/her employer. In preparation for quitting a job, employees can look for another job without advising their employers, advise customers of the intention to leave and compete, and even take minor steps to organize a new company while still working. What they cannot do is to solicit business while on the employer's payroll, talk against the old employer and hurt its reputation or lie down on the job by not taking orders or working as diligently as before.

Counsel Comment #65: To increase the chances that your employees will not work for a competitor while working for your company or thereafter, draft a non-competition clause in all applicable employment contracts.

If your company hires independent sales reps, be sure they are forbidden from selling competing lines unless your company is aware of this and both parties sign an agreement acknowledging that the company does not object to this arrangement.

Duty Not To Make Secret Profits

An employee cannot make deals with customers in which he promises to perform favors in return for secret kickbacks involving money or vacations. Any employee engaging in such conduct without the company's knowledge and consent can be terminated and sued for damages, including disgorgement of all salary and other financial payments made during the disloyal period.

TIP: An executive owes a duty of undivided loyalty to the company. Any activity which creates a possible conflict of interest must be brought before the board of directors for approval before the individual proceeds with such possibly conflicting or harmful action. This even includes.findlaw situations where an executive secretly promotes a product his company previously rejected.

Duties After Leaving The Company

After leaving a company, many sales employees either work for a competitor or compete directly against their former companies. Generally, they are free to do this as long as no restrictive covenant was contained in their contract. However, an ex-employee can still be sued for damages for revealing trade secrets or confidential infor- mation about his former company. But labels mean nothing and calling something a trade secret does not necessarily make it so. As previously discussed, the information must be something not generally known outside the field which gives a company a competitive advantage. Most important, its secrecy must be safeguarded.