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Freebies: Ethical Business Practice?

Freebies: Ethical Business Practice?

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Question:

As an agent of a large real-estate development company, I am often offered freebies and gifts by competing contractors in an attempt to attract me to take their bids over their competitors’. Lately, a friend of mine pointed out that the gifts really should go to my boss and not to me, as I am only an agent. Is this true according to the Torah’s rules and ethics?

And how about from the contractor’s end? Is it fair business practice to give out freebies to attract clients to shop at your store over your competitors’?

Is it fair business practice to give out freebies to attract clients to shop at your store

Answer:

That’s a great question, and it’s inspirational to know that there are people out there as ethically conscious and sensitive as you are.

Let’s address your second question first: Is it ethical to give freebies as incentives?

The following debate is recorded in the Mishnah, the earliest compilation of the Oral Law taught by the great sages of Israel:

Rabbi Yehudah says: A shopkeeper may not distribute roasted seeds or nuts to children, since he thereby accustoms them to come to him; but the sages permit it. (Bava Metzia 4:12)

The Mishnah apparently refers to children who were sent by their parents to do the shopping. The competing shopkeepers offered free snacks to the children, thus attracting them to do the shopping specifically in their shops.

The Talmud explains why the sages disagree with Rabbi Yehudah and consider such marketing tactics to be acceptable:

Because he [this shopkeeper] can say to him [another shopkeeper], “I distribute nuts; you distribute prunes.” (Bava Metzia 60a)

In other words, your bidders are all free to give their own incentives. But, to return to your first question, who gets to keep the freebies?

The Talmud discusses the case of a seller who throws in an extra unit of the item being sold—without indicating whom the bonus is for. Does the bonus go to the buyer’s agent, or to the principal buyer? The Talmud distinguishes two types of sales:

Rav Papa stated: The law is that [the bonus on] an object that had a fixed value must be divided [between the agent and the principal buyer], but [if the bonus was] on an object that had no fixed value, all goes to the owner of the money. (Ketubot 98b)

So, if the object has no fixed price, the bonus is the seller’s way of giving the buyer a better rate (think of someone selling a house, and throwing in the washer and dryer “for free”). If the object has a fixed price, the bonus is clearly a gift (think “free gift with your order”). But why must the agent and the buyer split the bonus if it’s clearly a complimentary gift?

Some commentators explain that we don’t know for whom the seller intends the gift: the buyer, whose money he receives; or the agent, who makes the decision to buy from him. Therefore, we resolve this difficulty by splitting the money between them.1 According to this interpretation, if the seller explicitly states that the gift is for the agent, the agent keeps the entire bonus.2

However, others explain that the agent must split the bonus with the principal buyer because the buyer’s money earned the agent this gift.3 Accordingly, even if the seller indicates that the bonus is for the agent, theDo you get to keep the freebie, or do you have to split it with your boss? agent has to split the bonus with the principal buyer.

So, which is it? Do you get to keep the freebie, or do you have to split it with your boss? Rabbi Schneur Zalman of Liadi makes the following distinction:

One who gives money to his fellow to buy for him an item that has a set and known price, and the seller added to what he gave the agent—this addition is a gift, and he [the agent] does not need to give it entirely to the one whose money it was, because it is not known to whom the seller intended to give it, the agent or his sender [the buyer]. So, he must only give him half.

Some are of the opinion that even if the seller stated explicitly that he is giving it to him [the agent], he is still obligated to give half of it to the sender, because it is his [the sender’s] money that earned this benefit. One who fears heaven should take this opinion into consideration. And the same applies to any benefit that an agent earns through his agency. (Shulchan Aruch Harav, Laws of Sales, Gifts, Agents and Guardians 11)

There you have it. The law is that the agent can keep the freebie, but the one who fears heaven is encouraged to share the freebie with his boss.

But there’s still one more issue to discuss. What if your bidder’s prices are too high or his product values are too low, and the gifts are a way of bribing you?

According to Jewish law, if the agent knowingly accepts an offer that is not in the best interest of the buyer, in exchange for a personal gift that he receives from the vendor, this constitutes thievery. The agent’s entire appointment and power of attorney is annulled, and he is obligated to reimburse his employer.4

The trouble is that being presented with big personal incentives has often led agents to accept offers that were definitely not in the best interests of the one who sent them. Though according to Jewish law the sale would essentially be null and void, and the agent would be obligated to pay reparations for all the damages or losses caused by his decision, the damages are not always reparable, and collecting them can prove to be difficult. Therefore, today many companies forbid their employees from accepting these gift incentives across the board.

So in your case, if your company does allow this, you may accept the incentives, but I would say that your best bet is to split the freebies with your boss. It’s a win-win: your boss is sure to appreciate your thoughtfulness. And, of course, pay attention to the integrity of your work relationships, and make sure that the incentives are given in good faith.

I hope this response gives you clarity and direction for your future dealings.

FOOTNOTES
1.

Rashi to Ketubot 98b, s.v. sheyesh lo kitzvah.

2.

It would seem that the same is true even if the sale item did not have a set price. See, however, Netivot Hamishpat 183:13.

3.

See Rif ad loc.

4.

See responsa Divrei Chaim, Choshen Mishpat 2:46.

Rabbi Baruch S. Davidson is a member of the Chabad.org Ask the Rabbi team.
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Discussion (10)
August 1, 2013
Curious
An interesting point Hudel raises. I too, am interested in hearing some thoughts on the matter.
Anonymous
United States
March 5, 2013
frreebies
Going back to your example, does the house buyer share the washer and dryer with the real estate agent? Also, the mezuzahs.
Hudel
Michigan
February 28, 2013
Sharing the Freebies!
I would suggest sharing the freebies with everyone around and enjoy it all together!
The one who is giving should be made aware that a freeby will not influence their decision whatsoever but only the quality of the service will.
Feigele
Boca Raton FL
February 23, 2013
Gifts to teachers
Especially on Purim teachers receive money and gifts. Do they need to hand this over to their employer ?
Anonymous
February 22, 2013
Ethical Business
I would differ with this opine, and suggest that not accepting the "freebie" is the best option. No matter how one looks at it, the acceptor is "on the hook" for reciprocity for something in the future. As a physician, I see pharma reps daily, who, in order for me to use their products, entice with "free dinner" and to listen to an "expert" who is hawking the particular drug. Honestly, I used to attend; however, as I began studying Torah and Talmud more rigorously, I found out that my attending, although "halachic" nevertheless made me feel uncomfortable, and therefore I stopped attending. The food was not Kosher, any way. So it became more of a "lose-lose" and as it didn't feel right to begin with, I followed my heart and head. Oh, and there is no such thing as a "freebie." Somehow, we will be buying something.
Dr. Gary Raffel
Delaware
February 22, 2013
Interesting
Having spent some time living in a Jewish market (old Spadina Avenue in Toronto), it has always been my belief that Jewish business is not only fair and ethical but also endowed with the spirit of generosity and sharing. I learned this not only from my parents business and acquaintances, but from the people of this market.
Now, that was the old days. These days people in business are expected to be sharply competitive, and in our society, it now seems politically more acceptable not to mention faith, politic or what have you.
I feel that gifting should be up to the individual, and those who have the money also have the perogative to purchase for clients or sales staff et al. Seems like a heck of a fuddy duddy idea to have to ask someone whose objectives should be better directed toward the higher paths. Anyone in their right mind can feel the oiliness of an insincere gift and then act accordingly.
Let the sinful assuage minutely for sins, or allow love to live.
sue
Kanata
February 21, 2013
Mr. Avrum R. Kaufmann
Who ever pays directly the airlines gets to keep the mileages
If the Employer pays he gets it
If the Employee pays and later submit his expenses to the Employer, he keeps it
My own rules - lol
I think this makes sense
Feigele
Boca Raton FL
February 19, 2013
Frequent Flier Miles
How does this apply to frequent flier miles? If the company is paying for your flight, who gets the miles, the employee or the employee?
Avrum R. Kaufmann
Minneapolis, MN
February 18, 2013
Choshen Mishpat 2:46
Baruch S. Davidson, you have replied well, a wonderful response. If only our HigherEd Legislative and Diplomatic and Armament Systems practiced such ethics, eh? lol

Many companies do not allow sales reps to accept tips, based on these timeless values of Jewish Law. Some sales reps take tips anyway, on-the-sly, and feel it is a form of adequate compensation for going "above-and-beyond" their normal duties, for a preferred customer, the rational being "I'm inadequately compensated for this work anyway..."

Managers, knowing this, provide "survey" and "appreciation" forms for customers to fill-out, and after a number of these has been collected, the employer rewards the sales rep with a cash incentive or bonus.

Corporations do this in love, not in the hatreds we are told in popular media venues.

Ethics in business, in HigherEd 'systems' of all types, stems from the same place: us. Jew/Jew-ish Law is a LIGHT UNTO THE WORLD, be one of faith or not.

Thank you, sir. Kind regards.
Clayton Winton
Spokane, WA
February 17, 2013
Ethical Business
Great law!! Hashem, blessed be He, is a great G-d of judgement. Baruch Hashem.
Anonymous
USA
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