30 Nov 2017

Commercial agency contracts: when refusing to enter into a second contract once the initial, time-limited contract has expired, the agent is still entitled to termination compensation.

About termination compensation for commercial agency contracts:

Pursuant to Article L.134-12 of the French Commerce Code, commercial agents are entitled to compensation for damage suffered as a result of terminated contractual relationships with their principals.

Such compensation is meant to remedy the loss sustained by the agent, who actively developed his principal’s customer base and revenue. Payment of the termination compensation is nevertheless subject to compliance with a number of conditions as follows:

- Termination must occur on principal’s initiative (or, by way of exception, on agent’s initiative only to the extent that the need to terminate the contract derives from the agent’s inability or illness).

- Termination may not be caused by serious misconduct on the agent’s part.

- Within one year of contract termination the agent must inform the principal that he intends to exercise his right to compensation.

Is the agent still entitled to compensation if refusing to sign a new agency contract after the initial, time-limited contract has expired?

By way of its decision of 21 June 2017 (appeal Nr 15-29127), the Commercial chamber of the French Supreme Court clarified the conditions for termination compensation as per Art. L.134-12 of the Commerce Code.

In this case, the principal, trading as a publishing company, entered into a time-limited contract with a commercial agent regarding publications distribution.

The principal informed the agent that it didn’t wish to renew the contracts after their expiry date and offered to negotiate a new contract. Yet no agreement was reached.

The commercial agent claimed payment of a termination compensation – which was denied to him in the appeal proceedings: the Court of appeal deemed that by refusing to sign the new contract suggested by the principal, the agent actually ended their business relationships.

The Court of appeal consequently ruled that the agent was not entitled to termination compensation because termination didn’t occur on principal’s initiative.

Yet, considering Articles L.134-12 and L.134-13 of the Commerce Code, the Supreme Court quashed the appeal decision.

The Supreme court substantiated its decision as follows: “Even if refusing to enter into a new contract once the previous one has expired, the commercial agent shall not be deemed to initiate contract termination”; therefore, the agent is still entitled to termination compensation.

In the above case, as it turned out, the principal did notify its decision not to renew the expired contracts for which the agent claimed compensation.