Legal Literacy for Sales Teams: Main Concepts You Need to Know

A secret to fruitful and secure client relationships lies beyond sales work. Legal is the component that activates the deal. Siloed communication between sales and legal teams can lead to delays in contract execution, consumer protection violations, and, ultimately, the loss of a contract or even penalties. Who is to blame?

One of the reasons for misunderstandings is that lawyers seem unapproachable and their work too complex. But it’s time to lift the veil of secrecy over legal performance. This article explains a series of basic legal concepts in simple language. 

Sales and marketing teams must have a basic knowledge of the law to ensure they don’t violate it, even by accident. A gift, for example, may seem like an innocent marketing ploy. However, a $5 fee for an item initially declared as a gift could set a legal precedent.

Here are the main sales and marketing-related legal concepts to avoid confusion and legal trouble.  

False advertising

This kind of advertising contains misleading information or fails to mention important details. False advertising can be intentional, but sometimes it’s accidental. A lack of intention does not matter, though, as it violates consumer protection laws nonetheless. Scroll down for several specific examples.

Advertising unavailable stock

Some companies advertise products before they have them in stock, just after they ordered them overseas and they’re still being shipped. However, the law requires the goods to be available when the ad appears. Otherwise, the company risks getting a hefty fine and suffering reputational damage. 

Bait and switch

It’s fair to call this practice fraudulent. Companies use this tactic to lure customers with low-cost products or services they don’t actually plan to sell. Once they take the bait, the company starts making excuses, claiming, for instance, that the product is out of stock. The next step is offering a more expensive alternative. 

Gifts

Businesses often use gifts to encourage customers to make a purchase. It’s not a big deal as long as these gifts are actually free. However, advertising an item for $20 and then charging $30 for a two-for-one deal misleads consumers and breaks the law.

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Nearly 94% of respondents said they were more willing to buy from a company with positive reviews. No wonder companies eagerly pay social media influencers to advertise their product and increase customer engagement. But it must be clear that their endorsement has been paid for. Consumers hate to be deceived — 60% consider trustworthiness and transparency as the brand’s crucial attributes. That’s not to say that fake product endorsement is also illegal.

CAN-SPAM act

The law with an acronymic title, Controlling the Assault of Non-Solicited Pornography and Marketing, deals with (bingo!) spam. It addresses the problem of sending promotional emails to consumers who haven’t signed up for it. Simply put, you must not spam, or you shall be penalized.

Telephone Consumer Protection Act (TCPA)

Another law to safeguard consumer privacy. It prohibits automated calls, calls outside the usual 13-hour window, and calls to households on the National Do Not Call Registry.

Made in USA Labeling Rule

It’s also prohibited to label your products “Made in USA” unless you meet at least one of three conditions: 

  • All or almost all of the product’s components have been manufactured in the US. 
  • The product has been substantially processed in the US. 
  • It has been assembled in the US.

Made in USA Labeling Rule demands that you closely follow these requirements. 

Antitrust laws

These laws combat business conspiracy. In general, they aim to limit the market power of a particular business entity. It’s, therefore, illegal for companies to negotiate fixed prices or merge to form monopolies and decrease competition.

Tort

The term originates from the Latin tortum, meaning something crooked. A tort is a type of harm that one entity does to another. They might, for example, intentionally spread false information about their competitors or interfere in business relationships, so that other entity cannot fulfill its contractual obligations.

Intellectual property

Intellectual property assets fall into four major categories: patents for development, copyrights (e.g., music, literary works, software), trademarks (e.g., logo, fonts), and trade secrets (e.g., Coca-Cola recipe). You will break the law by using someone else’s intellectual property without permission. 

Clearly, the law does not fall only in the lawyers’ domain. It’s much smarter to incorporate a legal aspect into sales activities instead of dealing with legal issues after they arise.

Let’s move on to more specific legal terms, particularly contract-related ones.

Contract law terms for sales

A sales team acts as a bridge between a company and its clients. Their power extends to many areas, including the contracting process. So, at least a basic understanding of contract law is essential. Below you will find its key terms explained.

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Caveat emptor

This Latin phrase means let the buyer beware. The said contract law principle is a disclaimer that prevents disputes arising from a lack of information about the product. In plain language, caveat emptor means that a person buys at their own risk.

Confidentiality agreement

Also known as a non-disclosure agreement (NDA), it prohibits the signing counterparty from disclosing sensitive information. For example, an NDA for software development often restricts the use of business ideas or code that a customer shares with the software vendor. 

Entire agreement clause

It states that the contract represents the entire agreement between the parties, so they cannot refer to previous agreements, negotiations, or discussions.

Indemnity

According to this agreement, one party must pay for any loss or damage incurred by another party. Insurance transaction is a common example of indemnification. As such, an insurance company agrees to compensate the insured for the damages caused by an accident.

Joint and several liabilities

The term concerns shared responsibility by two or more parties to a lawsuit. For example, if one party can’t pay, the other must pay extra to match the necessary amount. In determining liability, it’s important to consider to which extent this or that party was involved in or guilty of causing the damage. 

Alternative dispute resolution (ADR)

It’s an umbrella term for resolving conflicts outside the courtroom. It’s a rather beneficial way to settle things quickly and confidentially. One of its methods, mediation, involves a neutral third party, a mediator, that facilitates communication between counterparts. 

Breach of a contract

It occurs when one of the counterparts violates a contract term. A breach of contract can range from trivial cases, such as payment delay, to an actual breach, for example, mistaken or failed delivery.

As you can see, sales and legal are closely related. The question is, how to get these two departments to work in tandem? Read on to get the answers.

The following concepts will help you create synergy between sales and legal.

Shared KPIs

Discover what they have in common first. The bitter truth is that both departments see each other as a bottleneck in their daily work. But let’s look beyond this assumption.

Sales and legal have a common goal — closing a deal — and, therefore, share a range of KPIs:

Use these metrics to assess how effective your sales and legal team relationship is and to keep them on track toward the top-priority goal.

Contract performance monitoring

Once you have determined the crucial KPIs, distribute responsibilities and set up standard workflows for each stage of the contract lifecycle: be it contract creation, negotiation, or even emergency cases, such as alternative dispute resolution. Don’t rely on reactivity — act proactively. By assigning a specific role to each team member or deploying the specialized software, you will avoid gaps in your contract performance. 

While contract monitoring is crucial, it can’t be efficient without the central concept that helps you consolidate and multiply all sales and legal efforts. That’s contract lifecycle management automation.

Contract lifecycle management automation

Managing the contract lifecycle is a multifaceted process— just like the everyday processes of sales and legal departments. Interdepartmental collaboration is necessary to ensure that important things do not fall through the cracks. But it also needs time. 

The right contract lifecycle management (CLM) system will streamline your contracting process and free up time to focus on the essentials — like celebrating another successful deal. CLM software will handle all the routine operations: 

  • Creating transaction-ready contracts from pre-configured templates
  • Providing a single repository for easy tracking of contract changes
  • Setting up a workflow for contract approval
  • Monitoring deadlines for contract renewals or terminations
  • Building custom reports on contract performance

Your sales team will be able to simply click Create and route the contract to the legal department. The legal, in their turn, will just have to press Approve.

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Conclusion

Understanding legalese will bring you one step closer to efficient contracting. Sales and legal teams can only get better results by working together. It’s much easier with an automated CLM where sales teams create contracts using pre-approved templates, and legal teams provide high-level guidance and control. Check it yourself with AXDRAFT’s instant demo

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