Agency

Agency

An agency agreement is an agreement whereby a commercial agent undertakes to sell the seller's (principal's) products to other parties on behalf of and at the principal's risk. The commercial agent receives remuneration for his mediation activities. An agency agreement is a special type of agreement in which very specific arrangements, rights, and obligations can be included. The business relationship between the seller and the commercial agent is typically a long-term matter. Concluding an agency agreement must therefore be done with care. The distribution team at MKB Juristen has extensive experience in assisting commercial agents and principals during the negotiation and conclusion of agency agreements.

As with any business relationship, disputes can arise in an agency relationship. We assist organizations with disputes concerning, among other things:

• Exclusivity clause
• Competition
• Termination and cancellation (whether early or not)
• Customer compensation
• Compensation

We have the knowledge and expertise to assume diverse roles: from advice to dispute resolution. We have an experienced team of lawyers and legal experts in the field of agency agreements. Contact us to discuss the possibilities.

Agency within commercial law

The agency agreement is one of the core concepts within Commercial Law. Unlike an ordinary mandate or distribution, the legislator has extensively protected the position of the commercial agent in Articles 7:428 to 7:445 of the Dutch Civil Code. Many of these provisions are mandatory: you cannot deviate from them in the contract to the detriment of the agent. Anyone entering into an agreement as a principal or as a commercial agent would therefore do well to be familiar with the legal framework. Our mixed teams of lawyers and in-house counsel assist both the international group setting up an agent network and the independent commercial agent or the baker on the corner dealing with an agency relationship for the first time.

What is an agency agreement? (Article 7:428 of the Dutch Civil Code)

Pursuant to Article 7:428 of the Dutch Civil Code, an agency agreement is the agreement whereby the principal instructs the commercial agent, and the latter undertakes, to provide mediation in the conclusion of agreements for a fixed or unspecified period and against remuneration, and possibly to conclude these agreements in the name and on behalf of the principal, without being subordinate to the principal. Three characteristics are decisive: the agent mediates independently (there is no hierarchical relationship as in an employment contract), he does so for remuneration, and the relationship is of a lasting nature. There are no formal requirements for an agency agreement: an oral agreement is also valid. However, pursuant to Article 7:428 paragraph 3 of the Civil Code, either party may require the other party to provide a document signed by both parties in which the content of the agreement is set out. We always recommend recording the agreements in writing to prevent later disputes regarding rights and obligations.

Agency or distribution: an important distinction

In practice, the commercial agent is often confused with the distributor, but legally they are two distinct entities. The commercial agent acts as an intermediary on behalf of the principal, and the goods remain the property of the principal; he earns commission and does not bear the sales risk. The distributor purchases the goods himself and resells them for his own account and risk, earning a margin. This distinction has significant consequences: only the commercial agent enjoys the mandatory legal protection of the law, including the right to goodwill compensation. In case of doubt regarding the classification, the court looks at the actual execution of the agreement, not just at the label the parties have given it. You can read more about the distribution agreement on our Distribution.

Commission and remuneration of the commercial agent (Article 7:431 of the Dutch Civil Code)

Pursuant to Article 7:431 of the Dutch Civil Code, the commercial agent is entitled to commission on agreements concluded during the term of the agency agreement through his mediation. If a specific territory or a specific circle of customers has been assigned to the agent, he may also be entitled to commission on transactions concluded in that territory without his direct intervention. The timing of when the commission becomes due and payable is regulated in Articles 7:432 to 7:434 of the Dutch Civil Code; moreover, the principal must provide the agent with a monthly statement of the commission due. Clear agreements regarding the amount, basis, and timing of the commission's accrual prevent many disputes.

Termination and cancellation of the agency agreement (Article 7:437 of the Dutch Civil Code)

An agency agreement for an indefinite period may be terminated by either party subject to a notice period. If no period has been agreed upon, a statutory notice period of four months applies pursuant to Article 7:437 of the Dutch Civil Code, increased by one month after three years of service and by two months after six years of service. The parties may not agree on a shorter period than one month in the first year, two months in the second year, and three months in subsequent years. Furthermore, termination must take effect at the end of a calendar month. If the agreement is terminated irregularly – that is, without observing the proper notice period – the terminating party is liable for damages. In addition to termination, the agreement may also be terminated with immediate effect under special circumstances due to an urgent cause (Article 7:439 of the Dutch Civil Code); anyone who wrongly invokes an urgent cause is also liable for damages.

Customer compensation upon termination of the agreement (Article 7:442 of the Dutch Civil Code)

One of the most discussed topics is the goodwill compensation for clients under Article 7:442 of the Dutch Civil Code. Upon termination of the agreement, the commercial agent is entitled to this compensation to the extent that he has introduced new clients to the principal or substantially expanded agreements with existing clients, the principal still derives significant benefit therefrom, and the payment of the compensation is equitable in view of all circumstances. Pursuant to Article 7:442 paragraph 2 of the Dutch Civil Code, the compensation amounts to a maximum of one year's remuneration, calculated on the basis of the average of the last five years (or, in the case of a shorter term, on the average of the entire duration). Important: the agent must notify the principal within one year after the termination of the agreement that he claims the goodwill compensation; otherwise, his right lapses. The compensation is not due, among other things, when the agreement has ended due to a circumstance attributable to the agent constituting a compelling reason, or when the agent himself has terminated the agreement without justified cause.

Non-compete clause after the agency (Article 7:443 of the Dutch Civil Code)

The parties may agree that the commercial agent shall not compete for a specified period after the termination of the agreement. Pursuant to Article 7:443 of the Dutch Civil Code, such a non-compete clause is valid only if it has been agreed in writing, relates to the type of goods or services represented by the agent, and is limited to the territory or circle of clients entrusted to the agent. Furthermore, the clause may not remain in effect for longer than two years after the termination of the agreement. The principal cannot invoke the clause if he terminated the agreement irregularly or if the termination is attributable to himself.

Mandatory law: freedom of contract with limits (Article 7:445 of the Dutch Civil Code)

The legislature has deliberately given the commercial agent a strong position. Article 7:445 of the Dutch Civil Code determines which provisions are mandatory law: these cannot be deviated from in the contract to the detriment of the agent. A clause that undermines statutory protection is therefore voidable. For principals, this means that a standard contract from abroad by no means always holds up under Dutch law; for agents, it means that they are in a stronger position than a first reading of the contract might sometimes suggest. We therefore always assess agency agreements against the background of this mandatory law.

How MKB Juristen assists you with agency

Whether you are setting up an agent network, wish to have an agency agreement reviewed, or have become involved in a dispute regarding client compensation or termination: our mixed teams of lawyers and in-house counsel assist both principals and commercial agents. We draft and negotiate agreements, advise on commission, exclusivity, and non-competition, and litigate where necessary regarding termination and compensation. From international corporations to the baker around the corner: we translate the rules of commercial law into a practical, affordable approach that suits your situation.