ECJ Protects Commercial Agent's Rights On Termination During Trial Period

It has been a debatable issue for many years as to whether a Commercial Agent terminated during any trial or probationary period would be entitled to bring a claim for indemnity or compensation if they were terminated. The European Court of Justice decided this month that Commercial Agents' rights are protected even if the termination of the Agent's contract occurs during the trial period.

The Facts

The case began in France concerning an Agent selling 25 houses per year on behalf of the Principal. The contract had an initial twelve month trial period. Either party was allowed to terminate the contract, subject to notice being given. The Agent was terminated six months after commencement of the contract as the Agent had only made one sale in five months. The Agent had failed to fulfil the terms of the contract target. In France the definition of Commercial Agents is extended beyond that in the UK to cover certain services including the sale of houses. Agents selling some services are protected in several EU countries including France and Germany. The UK Commercial Agents (Council Directive) Regulations 1993 only applies to Agents selling goods.

The Agent sought compensation for the loss resulting from termination of the agency contract from the Principal.

The Law

Under French Law an Agent is entitled to compensation as opposed to an indemnity payment. Most of the EU member states allow an Agent to claim an indemnity which is based on the maximum of the annual average commissions over the last five years of the Agency or shorter period if appropriate. It is subject to deductions for inherited business. In the UK an Agent can be entitled to an indemnity if it is written into the Agency Contract in the UK. Indemnity is different from compensation in that it is based upon the Agent introducing new customers to the Principal or significantly increasing the volume of business with existing customers of the Principal enabling the Principal to continue to derive substantial benefits from the business with those customers. In the absence of an Agency Contract or no indemnity clause in the Contract, the Agent is entitled to compensation. Compensation is based upon a valuation of the Agency.

Compensation is based upon the damage an Agent suffers as a result of the termination of his Agency where termination deprives the Agent of the commission which performance of the Contract would have procured for him whilst providing the Principal with substantial...