Commercial Agency Agreement Under Brazilian Law

1. INTRODUCTION

   The commercial agency contract, according to the Brazilian Legal System, is provided for by articles 710 to 721 of the Civil Code (Federal Law 10.406, dated January 10th 2002). Subsidiary provision is given by Federal Law 4.886, dated December 9th 1965. Major modifications to this Law have been introduced by Federal Law 8420, dated May 8th 1992.

   Noteworthy is the fact that in Brazil there are different terminologies to identify the Agent, which may cause some confusion. In the past, and even nowadays, the most usual name for Agent was "Representante Comercial" (Sales Representative or Commercial Representative). Recently, there has been a modification of the Civil Code, and the legislator, following a worldwide tendency, adopted the terminology "Agente" (Agent).

   Thus, differently from some other countries, in Brazil people still may - and probably they will do - refer to "Agente" or, most commonly, "Representante Comercial" meaning the same commercial relation.

   The Agent may undertake his activities under a Legal Entity, or as a Natural Person. It is an obligatory requirement for the Legal Entity to be registered with the Junta Comercial (Commercial Registry), which is an autarchy responsible for registration of most legal entities.

   Simultaneously, the agent has to join a professional body. According to article 2 of Law 4.886/65, the agent must submit his registration with the CORE (Conselho Regional dos Representantes Comerciais - Regional Council of Commercial Representatives) of the State where he has his domicile. The non fulfilment of such obligation implies in a felony with legal provision by article 47 of Decree-Law 3.668/41 (Lei de Contravenções Penais) - illegal exercise of profession.

   There is a Federal Council of Agents named "Conselho Federal do Representante Comercial" which represents the agent category at Federal Level - http://www.confere.org.br

   Also, each State has a Regional Council named CORE. In order to practice the profession of Agent, the individual or legal entity has to be registered with the Regional Council - CORE.

   In case the Agent is not registered with the CORE, and thus performs the agency irregularly, there are the following implications:

   the principal risks to suffer a lawsuit and have recognized the labor liaison, depending on the de facto situation, with important economic consequences; the agent does not have the protection of Law 4886, specifically regarding indemnities due to contract termination; Agent may be criminally prosecuted for illegal exercise of regulated profession II. PURPOSE - AGENT'S STATUS - SUB AGENTS

   1. Purpose

      The nature of the commercial agency contract implies in a grant of right by the Principal to the Agent to negotiate the sale/purchase of goods or services. The Agent may or may not be granted the right to conclude such transactions, or other powers, such as representing the Principal, or to give special discounts. But this is at the sole discretion of the Principal. Such powers may be included in the contract, according to the sole paragraph of article 710 of the Civil Code (Federal Law 10406, dated January 10th 2002).

      The power to conclude the business does not mean that the agent will be selling the goods. The sale is always made by the principal directly to the buyer.

      Legal provision for the purpose of the commercial agency contract is given by article 710 of the Civil Code and article 1 of Law 4886.

      According to article 27, b, of Law 4886, it is obligatory to indicate the products, generically or specifically, object of the contract. However, non compliance with this regulation does not make the contract void, but only creates the presumption that the agency comprises all of the principal's products.

   2. Independence

      Despite it is expressly determined by article 710 of the Civil Code and article 1 of Law 4886 that the agent acts as a self-employed intermediary, this subject is court sensitive and may give rise to controversies.

      There are two elements that indicate the distinction between an agency relationship and a labor one: individuality (work performed personally by the individual) and subordination. Labor Law considers that an employee can only be a natural person, never a legal entity. Thus, if the Agent is a legal entity, the agency agreement is rarely interpreted as a labor relationship. However, we must stress that there is case law showing the contrary, where individual legal entities (Firmas Unipessoais) and husband-wife small legal entities could be disregarded to recognize a labor liaison/relation.

      The second element is the subordination. The agent is an independent worker. According to the Regulations of the CORE, the agent must comply with the instructions of the principal, mainly concerning pricing, as well as periodic reports on the ongoing of the negotiations. But the principal shall not impose or demand working hours, dates or schedule for meetings with clients, or functions other than the negotiation of business.

      The labor relationship results in a heavy taxation, and therefore many employers try and adopt the relationship of agency, by means of a commercial agency agreement, in order to avoid certain labor obligations. But if the "agent" is a natural person and can prove the subordination, the Court may consider an employment relationship, despite express consent of independence on the contract.

      We draw attention to the fact that the registration with the CORE of the agent who undertakes his activities as a natural person can also be considered irrelevant by the court, if it understands that the nature of the relationship, de facto, involves subordination. On the other hand, a person not registered with the CORE not necessarily shall be regarded as an employee. It is necessary to be characterized the subordination element of the relationship. This is a corollary of the principle of the reality primacy.

      According to the doctrine of Paulo Emilio Ribeiro Vilhena (in VILHENA, Paulo Emílio Ribeiro de. Relação de Emprego. Estrutura Legal e Supostos. São Paulo: LTr, 2a ed, 1999, p. 495):

      "In the practice of national case law (contrary to what has been always rendered by the French Cour de Cassation, to whom the formal criteria -le critère formel - is decisive), the verification of formal elements constitutive of the regular profession of commercial agent does not pre-exclude the examination of the situation de facto, i.e., the way by which the agency develops, and the substantial relations that succeed between agent and principal."

      Case law. Note: Employment Relationship - Commercial Agency Contract. The 4th Chamber of the Superior Labor Tribunal has decided that the fact of the worker be considered a commercial agent registered with the competent body does not...