Right to commission after termination agency contract?
If an agency contract is terminated, agreements have to be made between the principal and the commercial agent, for example about the settlement of commission. Until what time is the commercial agent entitled to commission for the orders he brokered? This issue was also addressed in a recent ruling by the court of Gelderland, The Netherland. Dutch agency law specialist Thomas Van Vugt explains this case.
Commercial agent brokers in sale of the principal’s products
Since 2011 there has been an agency contract between the commercial agent and the principal Joymed. In this contract the agent committed to broker in the sale of Joymed’s products. The contract includes the clause that the agent is entitled to full commission for those orders that are placed within 3 months after termination of the contract and that were not concluded by brokerage by another agent.
Termination agency contract by principal
Joymed terminates the agency contract with a term of notice of 3 months on 31 December 2013. However, the parties become embroiled in legal proceedings, including a discussion about (the amount of) the commission. Because to what is the commercial agent entitled exactly? Which orders can be traced back to his brokerage after he left? And how does the contractual stipulation about the commission relate to the legal requirements?
Legal regulation agency contract and commission
The law has a special arrangement for commission claims by commercial agents after termination of the agency contract. Article 7:431 of the Civil Code of The Netherlands stipulates that the commercial agent is entitled to commission for the preparation of orders concluded after termination of the agency contract, provided these are mainly due to the work by this agent during the term of the agency contract and provided these were concluded within a reasonable term after termination of the contract.
‘Reasonable term’ differs for each case
This stipulation is much like the contractual agreement between the parties, but the term differs. The law stipulates a ‘reasonable term’, while the contract stipulates a ‘three month’ term. The court however dismisses the contractual term. Article 7:431 of the Civil Code of The Netherlands is mandatory law, which means that any deviating agreements in the contract do not apply. A definition of a ‘reasonable term’ then depends on the circumstances of the case and shall differ on a case-by-case basis. In this case the court attaches importance to the fact that the sales process of Joymed products is a long and complicated process. The court therefore sets a reasonable term at 4 months (starting the day of termination). The documents shall have to show which orders placed during this term were prepared by the agent. He is then owed commission for these orders.