Knowing your rights as a commercial agent or a principal (i.e. the person the agent concludes the transaction for) is essential for negotiating a commercial agency agreement. Failing to do so can – contrary to common perception – have drastic financial consequences since a commercial agent is not automatically entitled to commissions for sales concluded by the principal with previously acquired customers.
In line with the EU Commercial Agency Directive (art. 7), a commercial agent is, a priori, entitled to a commission for a sale concluded during the term of the commercial agency agreement when the sale:
- was concluded or negotiated by the agent (direct commission);
- was concluded directly by the principal with a customer that was a previously acquired by the agent for a similar transaction, e.g. ‘cut out the middle man’ for repeat orders (indirect commission);
- was concluded with a customer from a certain territory/group of customers that the commercial agent was entrusted with or had exclusive rights to.
The commercial agent is entitled to a commission for a sale concluded after the term of the commercial agency agreement when (art. 8 of the EU Commercial Agency Directive):
- the sale is mainly attributable to the commercial agent’s efforts during the commercial agency agreement and was concluded within a reasonable period after the commercial agency agreement was terminated;
- the order of the customer reached the principal or the commercial agent before the commercial agency agreement was terminated (and under the conditions applicable during the commercial agency agreement).
It was common perception among commercial agents, principals and legal scholars that the right of the commercial agent to an indirect commission, was an absolute right that could not be deviated from by the parties in the commercial agency agreement.
However, in a recent case, the European Court of Justice decided that the right of a commercial agent to indirect commissions is not absolute, taking into account the context, objectives and history of the EU Commercial Agency Directive, i.e. (case C-64/21):
- the EU Commercial Agency Directive consistently indicates when the rights and obligations can be deviated from, which is not the case for indirect commissions;
- the objective of the EU Commercial Agency Directive is the protection of commercial agents, but an absolute right to indirect commissions is not necessarily beneficial for commercial agents, e.g. principals could decide to lower the general commissions or decide not to conclude a commercial agency agreement.
In light of this important decision, it is now clear that the right of a commercial agent to indirect commissions can be excluded in the commercial agency agreement.
“The effect of this decision in the EU cannot be underestimated, since it is to be expected that principals will insist on the exclusion of indirect commissions during contract negotiations“.
Unclear at this time is whether the exclusion of indirect commissions should be explicitly mentioned in the commercial agency agreement, or whether these can be excluded tacitly/implied, i.e. the right to indirect commissions is simply not mentioned in the commercial agency agreement (which occurred in the case at hand).
For more guidance on commercial agency agreements and optimization of trade intermediary agreements, feel free to reach out to EY Law.
Action points
- know your rights as a commercial agent or principal during contract negotiations;
- explicitly include or exclude the commissions the commercial agent is entitled to in the commercial agency agreement;
- reach out to EY Law if you would have some questions or uncertainties.
