The principal terminates my commercial agency contract: Am I entitled to indemnity?
Yes. Pursuant to article L.134-12 of the French commercial Code, it provides a right to indemnity to the commercial agent in case the principal terminates the contract, notwithstanding, it is a breach of the contract or a result of a fixed term contract reaching its expiry date.
If the agent terminates himself his contract, is he entitled to any indemnity?
No, if the termination results from the agent’s resignation.
Yes, if the breach of the contract is due to the non-fulfillment of the principal’s obligations (it is often more cautious to initiate a legal proceeding so as to terminate the contract by the principal rather than the agent taking initiative to cease his activity, which can be a sign of resignation if the charges towards the principal are not significantly constituted).
Yes also, if the termination of the contract is due to grounds of age, infirmity or illness of the commercial agent in consequence of which he cannot reasonably be required to continue his activities. This should be a real physical disability suffered by the agent, and it is meant to be medically accredited.
(For an example of judicial precedent related to the termination of the activity due to health condition).
(For example, a judicial precedent related to the death of the agent).
Caution : the fact that the agent has reached the age allowing him to benefit from his retirement benefits is not sufficient other than in the case of real physical disability.
In which circumstances can the principal terminate the contract without indemnity?
In case of serious misconduct attributable to the agent, namely an infringement to the common interest of both parties of the contract, which would justify immediate termination of the agency contract.
The burden of proof of the serious misconduct by the agent lies with the principal.
Can the contract anticipate that a specific circumstance would be considered as a serious misconduct by the agent, causing a severance of his indemnity pay?
No. Only the judge can assess the existence of a serious misconduct. For example, the clauses, stating that the non-achievement of the targeted turnover would be a serious misconduct shall be considered as not existing.
Can the contract remove any right to indemnity?
No. The parties may not derogate to the detriment of the commercial agent from right to indemnity (except in case of serious misconduct or resignation of the agent). All clauses cutting out the right of indemnity or limiting its amount or regulating the corresponding calculating procedures shall not be binding.
What is the amount of the indemnity for termination of the commercial agency contract?
Only the judge can assess the amount of the indemnity. However, the professional uses and well established judicial precedent applying French law often assess the amount of the indemnity equal to the value of two years of commissions. Henceforth, the burden of proof lies on the party who estimates that the damage is more or less different from the uses.
(For example, there is a recent judicial precedent concerning an indemnity fixed at two years’ contributions).
On which rate basis is the indemnity calculated?
The indemnity is generally calculated equal to the value of the last two years of commissions or on the basis of the average of the last three years multiplied by two. It is calculated on the overall remuneration of all kinds paid to the agent in performing his representing activity without any distinction between created or pre-existing customers.
Can the principal terminate the contract without notice?
No. The right to notice is also of public order policy, except in the event of serious misconduct by the commercial agent. In case of breach of the contract without any given notice, the agent has a right to compensation.
Is the agent entitled to a right of commission on the concluded transactions after the termination of contract?
In the absence of any contrary provision, the agent is entitled to a commission, either when the transaction is primarily due to its activity in the course of the contract and which has been agreed within a reasonable lapse of time after the termination of contract, or when the order of the customer has been received before the termination of the agency contract.
Can the commercial agent assign his contract to a successor?
Yes. It is a right of public policy for the commercial agent. Any contrary contractual clause (intuitu personae clause for example) shall not be binding.
Can the principal refuse the assignment of the contract by the agent to a successor?
Only if the principal has got legitimate and serious reason to do so, namely, when the proposed successor doesn’t have the requisite professional qualities allowing him to give performance to the mandate contract. If the principal refuses without any legitimate and serious reason the proposed successor or refuses every succession by mere principle, he will provoke a breach of contract and give right to indemnity to the agent.
(For example, a recent judicial precedent illustrating an unjustified refusal of a successor)
Which steps shall be respected by the agent on assigning the contract to a successor?
First and foremost, it is important to undertake a commitment between the transferor agent and the would be successor, subject to a precedent approval by the principal regarding the successor candidate.
Subsequently, the agent must introduce the successor to the principal. It must be a real presentation enabling the principal to be convinced of the good abilities of the recipient candidate to give right performance to the mandate contract.
In case of approval of the successor by the principal, an amendment to the contract referring to the transfer shall be endorsed.
Particular attention in the most cautious manner must be given. This process necessitates thorough preparation and reflexions including the drafting of the documents which explicitly contributing to its formalization must be elaborated to meet its need with the support of a professional.
Antoine SIMON, Attorney
L.E.A – Avocats