Agency disputes are legally charged due to mandatory European law. The commercial agent enjoys strong protection, particularly upon termination. In our practice, we see that principals are often surprised by claims for compensation to the client. Clumsy termination can amount to a year's turnover in commission. Those familiar with the legal framework can keep claims manageable — or even avoid them.
What is the legal problem?
Commercial agency is mandatorily protected within the EU by Directive 86/653/EEC. The agent is entitled to commission, reasonable notice periods, and compensation to the client upon termination. Many provisions cannot be excluded contractually. Internationally, protection details vary by country. Clumsy contract management leads to unintended liability for client compensation up to an annual turnover in commission.
What does the law say?
EU Agency Directive 86/653/EEC, implemented in the Netherlands in Articles 7:428-445 of the Dutch Civil Code. Client compensation under Article 7:442 of the Dutch Civil Code: maximum average annual commission of the last five years. Notice period increases with duration under Article 7:437 of the Dutch Civil Code: a minimum of one month in the first year to three months from the fourth year. Many provisions are mandatory.
Under Brussels I-bis, the court of the agent's place of establishment has jurisdiction pursuant to Article 7(1). For goodwill compensation under German law, Section 89b of the German Commercial Code applies.
What risks do companies face?
Awkward termination leads to customer compensation amounting to hundreds of thousands or millions. Incorrect contract classification (actually an agent but contractually a distributor) leads to retroactive commission claims. Loss of customer base upon departure. Competition rules limit non-compete clauses to two years under Article 7:443 of the Dutch Civil Code. Unintended tax risks (permanent establishment via agent under Article 5 of the OECD Regulation) increase the burden of the position.
Practical example from our practice
We represented a Dutch manufacturer who terminated a contract with an Italian commercial agent after ten years. The Italian court awarded customer compensation of 250,000 euros based on the Italian implementation of Directive 86/653/EEC. In subsequent relationships, we incorporated generous contractual commission rights and phased termination. The next termination yielded 90,000 euros in customer compensation instead of the estimated 320,000 euros — a saving of 230,000 euros.
What can you do?
Document performance issues before termination. Strictly apply statutory notice periods under Section 7:437 of the Dutch Civil Code. Incorporate a voluntary buyout scheme to avoid litigation. Assess entitlement to customer compensation under Section 7:442 of the Dutch Civil Code on a country-by-country basis. Limit non-competition reasonably under Section 7:443 of the Dutch Civil Code. For highly regulated markets: consider distribution instead of agency. See also our article on Agency or distribution: what is the difference?