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The breach of the commercial agent contract

The breach of the commercial agent contract

Modalities of the breach of the commercial agent contract

Whether it is decided by the commercial agent or the principal, the breach of the commercial agent permanent contract must in the first instance be reported to the other party.

The law does not impose particular formality on the subject.

A registered letter or equivalent (typed letter delivered personally against receipt) will be however strongly recommended to avoid discussions on the principle of the breach itself as well as on its date of coming into effect.

But it is not rare that the commercial agent contract is not clearly not breached by the principal, the latter ensuring to no longer enable the commercial agent to execute normally his/her mandate, either by no longer supplying him/her with the necessary information (prices…), samples, etc. and/or by deliberately withholding payment of his/her commissions, etc.

In such a situation, it will therefore be up to the commercial agent to acknowledge the breach of his/her contract due to the fault of his/her principal.

Caution is necessary, however, here, as an untimely acknowledgement will be similar to resignation of the commercial agent concerned.

If one of the parties takes the initiative of clearly breaching the commercial agent contract, a notice period must be respected.

This period will vary depending on the duration of the contract in question.

In France, this notice period will be one month in the event of breach of the commercial agent contract during his/her first year, two months in the event of breach during the second year, three months in the event of breach during the third year and the following years of the contract.

The parties may not agree on shorter notice periods. If they agree on longer periods, the period of notice period contractually agreed for the principal must not be shorter than the one stipulated for the agent.

In Belgium and in the majority of the other European countries, this notice period may be increased up to six months depending on the number of years of the contract.

However, such a notice period does not have to be respected in the event of serious misconduct cited in support of the decision to terminate the commercial agent contract.

In the event of a fixed-term contract not containing a tacit renewal clause, the contract will in principle end automatically when the contract period ends, except when the parties continue to execute them once the contract has ended; in this case, the contract will be transformed into a permanent contract.

 

Consequence of the breach of the commercial agent contract

As soon as the contract has ended, of course, the commercial agent will no longer have to provide services to his/her former principal.

On the other hand, the principal will be obliged to pay to the commercial agent the commissions remaining due to him/her not only with respect to the orders taken by the commercial agent or received by the principal during the contract, but also with respect to the orders principally due to the activity of the commercial agent during his/her contract and placed by the clients within a reasonable period from termination of the contract of the commercial agent. This is the famous right of continuation of the commercial agent.

Moreover, the obligation of non-competition to which the commercial agent was bound to his/her principal will also end.

Consequently, unless the contract had stipulated an obligation of post-contractual non-competition, the commercial agent may then work for a rival company of his/her former principal.

On this subject, it is advisable to specify that the obligation of non-competition which weighed on the commercial agent during the contract and that s/he may be obliged to respect after his/her contract are markedly different.

In effect, in the event of post-contractual clause of non-competition, the commercial agent cannot work for a competing company. But, apart from the fact that this clause of non-competition cannot exceed two years from termination of the contract, it must be limited to the sector as well as to the products entrusted to the commercial agent by his/her former principal. Contrarily to what is stipulated for the employees, it is well established in case law that this clause of non-competition will does not have to be combined with financial compensation to be valid.

Lastly, one of the essential characteristics of the commercial agent contract is the compensation which the commercial agent can in principle claim in the event of termination of the contract (see our article on this issue “compensation for termination of the commercial agent contract.”)

This compensation is public policy and cases in which the commercial agent cannot claim it are rare.

Such is notably the case:

–          if the termination of the contract is caused by the serious misconduct of the commercial agent (see our article on this subjectSerious misconduct of the commercial agent: fundamental notion of the right of the commercial agent),

–          if the termination of the contract is the result of the initiative of the commercial agent, in other words if the commercial agent terminates his/her contract, unless this termination is justified by circumstances attributable to the principal or due to the age, disability or illness of the commercial agent, following which the continuation of his/her activity can no longer be reasonably required,

–          if the commercial agent transfers his/her contract to a third party.

The amount of this compensation is not set by the law. The custom is, however, to set this compensation at two years of commissions, knowing that different amounts are, however, conceivable in very specific cases.

The bases of calculation of this compensation must of course be correctly understood to calculate compensation for breach of the commercial agent, the challenge being sizeable for the commercial agent as well as for the principal.

 

FOUSSAT AVOCATS: our expertise at your service

Specialised in commercial agent law and managing over a long time the issues linked to the breach of commercial agent contract, FOUSSAT AVOCATS advices and assists its clients throughout the life of their commercial agent contracts, including in the event of international contracts, as well as concerning their conclusion, execution and cessation.

We are therefore at your disposal for any additional information that you may wish.

FOUSSAT AVOCATS, Paris Marseilles Brussels