An agency agreement
What is typical of an agency is that a commercial agent undertakes to enter into an agreement in the name of their principal. The commercial agent does not themself become party to the agreement which they sign on behalf of their principal but merely represents the latter’s interests.
It is usually the principal who determines the conditions subject to which the commercial agent may enter into an agreement in their name. As such, the principal usually determines the price for which the commercial agent may sell their products and the conditions subject to which this may occur.
Entitlement to commission
A principal usually pays their commercial agent for their work in the form of a percentage (commission). The law stipulates that a commercial agent is entitled to commission for entering into an agreement in the following three cases:
- where the agreement has been concluded due to their intervention;
- if the agreement has been concluded with someone whom they have already previously introduced for the purposes of that agreement;
- in the event that the agreement has been concluded with someone who is or constitutes part of the clientele that is based in the area which has been assigned to the commercial agent, unless it has been explicitly agreed that the commercial agent does not hold an exclusive right in respect of that clientele or area.
The law provides for a so-called ‘assumption of exclusivity’ on the part of a commercial agent. Such exclusivity entails that the commercial agent is solely entitled to represent their principal in a specific territory. In practice, this may mean that the commercial agent is entitled to commission for all agreements concluded in the relevant area, even if the agent did not play any role in their conclusion. Derogation from this principle is only permitted, provided that the agency agreement explicitly stipulates that there is no question of exclusivity.
Restraint-of-trade clause
An agency agreement may also contain a restraint-of-trade clause. Such a clause may render it mandatory for a commercial agent to refrain from competing with their principal while they are working together or after they have ceased to do so. In principle, a restraint-of-trade clause is permitted provided that:
- it is in writing; and
- it applies to the type of goods or services in respect of which the commercial agent held representational powers and in the area and/or the clientele assigned to them;
- the restraint of trade with the principal does not last longer than two years after the termination of the agreement.
The principal may not derive any rights from a restraint-of-trade clause, if they fail to comply with the term of notice for the agency agreement or in the event that the termination of the agency agreement is due to circumstances for which the principal may be held culpable. Furthermore, such clause would be invalid if were unreasonably onerous for the commercial agent.
Termination of an agency agreement
Either party may cancel an agency agreement. In principle, the legally stipulated term of notice of an agency agreement amounts to four months, which is extended by one month after a term of three years and by two months following a term of six years. An exception may apply to the legally stipulated term where there are compelling grounds which have been clearly communicated to the other party. The parties may stipulate a different term of notice in their agency agreement, although it must comply with the relevant legal requirements. Such term may not amount to less than one month in the first year, and may be no shorter than two months during the second year and no less than three months in any subsequent year.
Goodwill
Upon the termination of an agency agreement the relevant commercial agent is in principle entitled to clientele compensation (also referred to as goodwill compensation) in so far as:
- they have introduced new customers to the principal or have significantly extended the agreements with the existing customers and those agreements still yield considerable benefits to the principal; and
- the payment of such compensation is equitable given all of the circumstances, in particular, with regard to the commission foregone in respect of the agreements with these customers.
Differences with other types of agreements
It may be difficult to draw a distinction between an agency agreement and other types of contracts. For instance, an agency agreement is similar to a distribution contract. A distributor carries out virtually the same type of work as a commercial agent who sells their principal’s products subject to the proviso that a distributor cannot bind their supplier but only themself. As such, a distributor acts at their own expense.
An agency agreement differs from an employment contract, because there is a degree of subordination in the case of the latter. If subordination follows from an envisaged agency agreement, it may therefore also change its nature to become an employment contract.
The difference between normal mediation and agency is that the parties seek to enter into a fixed relationship (a ‘continuing performance contract’) by means of an agency agreement. Where a party enters into one or more agreements in their own right for the benefit of a principal, they may constitute mediation agreements in certain cases and, depending on the circumstances, may amount to agency contracts in other instances. This distinction is relevant, because a commercial agent is legally entitled to compensation for building up clientele. A mediator who is party to a mediation agreement does not enjoy such a benefit.
Conclusion
An agency agreement is a defined contract, which is to say that the law stipulates how the agreement ought to appear in a number of respects. Our specialists have extensive expertise and experience, so as to be able to assist businesses in the case of agency agreements. You may contact one of our specialists free of obligation for more information or an introduction.