At first glance, an agency agreement may appear straightforward: a commercial agent introduces customers and receives compensation in return. In practice, however, disputes frequently arise regarding commissions, exclusivity, termination, and the financial settlement upon the end of the relationship. A well-drafted agency agreement prevents many of these issues. In this article, we discuss the key elements of an agency agreement.
What is an Agency Agreement?
An agency agreement is a contract under which a commercial agent, in exchange for remuneration, intermediates in the conclusion of agreements on behalf of a principal. The agent operates independently and is therefore not an employee. In certain cases, the agent is also authorised to conclude agreements on behalf of the principal.
The statutory framework governing commercial agency is set out in Sections 7:428 through 7:445 of the Dutch Civil Code. For the differences between agency and distribution arrangements, we refer you to our earlier article on this topic.
Key Provisions in an agency agreement
- Territory and customer base
Our recommendation is to clearly define the region in which, or the customers for whom, the agent will act. It may also be agreed that the agent will operate exclusively within a specific territory or for a particular customer group. Lack of clarity on this issue regularly leads to disputes regarding commission entitlements and the question of which party a customer belongs to.
- Commission arrangements
The commission scheme often forms the core of the relationship. Important questions may include: 1) how is the commission calculated? 2) at what moment does the right to commission arise? 3) which turnover or sales are included? and 4) how and when will payment be made? Clear arrangements help prevent disputes when agreements are amended, cancelled, or not performed.
- Term of the agreement
An agency agreement may be entered into for a fixed term or an indefinite period. It is important to make arrangements regarding renewal, termination, and any possibilities for early termination. The law prescribes minimum notice periods from which parties cannot easily derogate to the detriment of the commercial agent.
- Non-Compete clause
The parties may agree that, for a certain period following termination of the agreement, the agent will refrain from carrying out competing activities. Statutory requirements apply to the validity of a post-contractual non-compete clause. An overly broad provision may prove to be wholly or partially unenforceable.
- Confidentiality and intellectual property
Commercial agents often have access to commercial information, customer data, and pricing arrangements. A confidentiality clause may therefore be essential. In addition, it is advisable to include provisions regarding the use of trademarks, trade names, and marketing materials.
Important: Termination of the relationship
One of the most distinctive aspects of commercial agency is that, under certain circumstances, the commercial agent may be entitled to a goodwill indemnity upon termination of the agreement. This indemnity is intended to compensate the agent for customers introduced by the agent from whom the principal continues to derive benefits after the relationship has ended.
Many businesses are unaware of this mandatory statutory entitlement. As a result, the financial consequences of termination may be considerably greater than anticipated. A timely legal assessment of both the agreement and the proposed termination can therefore prevent substantial disputes and costs.
Conclusion
An agency agreement forms the legal foundation of a long-term commercial relationship. For that reason, it is important not only to make arrangements concerning day-to-day operations, but also regarding situations in which the relationship changes or comes to an end.
More information
Would you like an agency agreement to be drafted, reviewed, or terminated? The specialists of our Trade, Industry & Logistics department advise both principals and commercial agents on all aspects of agency law.
