Sales Representatives as Potential In-House Sellers in the company

The Royal Decree 1438 of 1 August 1985 sets out the characteristics of the special employment relationship applicable to commercial representatives.

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It defines commercial representatives as individuals who commit, with one or more employers and in exchange for remuneration, to personally promote or arrange commercial transactions on behalf of those employers, without bearing the risk of such transactions, that is, without being liable for deals that fall through due to the employer's proven fault.

Excluded from the definition of commercial representative are those who:

• Are subject to set working hours with the company.
• Promote or arrange transactions on the company's premises.
• Are the owners of an independent business organisation with their own premises and staff.

The commercial representative may receive from the employer: working schedules (which are not the same as being bound to fixed hours or shifts as under a standard employment relationship), itineraries, distribution criteria, pricing guidelines, instructions on how to place orders, and a contract. What the employer may not impose are orders or disciplinary sanctions as if this were a standard employment relationship.

It is essential and important to clearly specify several matters in the contract, such as:

• The parties entering into it.
• The type of commercial transactions the representative promotes or arranges.
• The products or services covered.
• The powers the employee does or does not hold.
• Whether the representative may or may not enter into transactions on the employer's behalf.
• Whether the representative works exclusively for one employer or not.
• The definition of the territory or area assigned.
• The category of clients to be served.
• Whether clients are exclusive or not.
• An inventory and the attributed value of the sample collection.
• A list of products.
• The working tools provided by the employer.
• A list of resources contributed by the employee.
• The duration of the contract, which may be indefinite or fixed-term, in the latter case, it may not exceed 3 years.
• The type of remuneration agreed, which may consist of:
  • Commission on transactions in which the representative was involved and which were accepted by the employer (provided the contract stipulates that employer approval is required).

Commissions become due at the moment the client makes payment. The company must settle and pay the employee within one month, extendable to three months by agreement in the employment contract.

The commercial representative's obligations include:

• Carrying out their activities in defence of the employer's legitimate interests and in accordance with their instructions.
• Conducting their activities properly and refraining from engaging in unfair competition.
• Providing prompt updates on transactions carried out and on any circumstances that may affect their execution or the client base.
• Managing the collection of commercial transactions in which they were directly or indirectly involved, where this is agreed in the contract.
• Keeping the employer informed of their activities aimed at promoting transactions.
• Not providing services to competing companies, informing the employer of their other main clients, and obtaining the employer's permission where this has been agreed.
• Complying with any post-contractual non-compete clause agreed in the contract.

Rights of the commercial representative:

• The right to paid annual leave in accordance with the Workers' Statute, where no such provision exists in the employment contract or in a collective agreement.
• The right to have the employment contract suspended in accordance with the provisions of the Workers' Statute.
• The right to have a recognised client portfolio at the outset of their engagement, or one generated during the term of the employment contract. They may request each year that an updated client list be appended to the contract, along with any variation in transactions carried out during the year.
• The right not to have their assigned territory or area altered, and to receive financial compensation if it was designated as exclusive, or alternatively to request termination of the contract with the statutory compensation of 20 days' salary per year worked, capped at 9 months, in addition to any client portfolio compensation.

Termination of contract:

• The contract may be terminated by the representative's resignation, subject to three months' notice.
• The contract may be terminated by unfair dismissal, with compensation as provided under the Workers' Statute (33 days per year of service, capped at 24 months in cases where the dismissal is deemed unfair), with the particular feature that the monthly salary is calculated based on the annual average earnings over the two years preceding the dismissal.

Client Indemnity:

The employee shall be entitled to a special indemnity in respect of the client base they have built up:

• Where the contract is not terminated due to a breach of their obligations.
• Where the employee is bound not to compete with the employer or to refrain from providing services to a competing employer.

In the absence of agreement between the parties, the Judge shall determine the amount, which may not exceed the total commissions earned over one year.

Social Security:

The commercial representative is personally responsible for meeting the obligation to contribute and for paying the full amount of Social Security contributions, both their own portion and the employer's portion.

The employer pays the representative the employer's share of contributions at the time of remuneration.

For contribution purposes, commercial representatives are classified under Group 5 of the current contribution group scale within the General Social Security Scheme. The minimum contribution base for common contingencies is €753, and the maximum is €3,425.70 per month.

During periods of temporary disability (IT), pregnancy-related risk, breastfeeding-related risk, or maternity or paternity leave, the contribution base shall be that corresponding to the month immediately preceding the start of any of those situations.

Conclusions:

The role of the commercial representative remains as relevant as ever. Having skilled salespeople is essential to weathering difficult economic times, and while this employment model is unfamiliar to many, it proves highly effective for others.

Its effectiveness lies in the commission-based remuneration structure, which can be advantageous in the early months, it is quite common for the employee to close few deals initially, whether due to training requirements, limited experience, or simply a lack of aptitude for the role. In such cases, no salary accrues, and Social Security contributions are calculated on the minimum base.

As the representative's performance improves, their commissions increase, which benefits the company, since the representative generates sales and is rewarded accordingly.

The key is to define the company's sales strategy clearly from the outset, so that the contractual terms, which, as with any sales arrangement, carry significant weight, can be drafted in a way that properly sets out the rights and obligations of both parties.