Our Trade, Industry and Logistics team regularly publishes articles as part of the series “Ten Frequently Asked Questions About…”. Through this series, we aim to provide accessible and practical information on specific legal concepts, topics and current developments. Should you have an eleventh question after reading these ten frequently asked questions, we would of course be happy to assist you. You can contact one of our TIL (Trade, Industry & Logistics) colleagues for further information.
The ten most frequently asked questions about agency.
At Kneppelhout, we support companies in all legal aspects relating to commercial agency. We advise on the drafting and review of agency agreements, assist in disputes regarding commission and goodwill compensation, and advise on the termination of agency agreements. We also help assess the legal qualification of a commercial relationship and the consequences thereof.
In an earlier article on our website, we discussed the 10 most frequently asked questions about distribution. In this article, the focus is on agency. Based on ten frequently asked questions, we explain the fundamentals of agency law and the commercial agency agreement.
1. What is agency?
Agency is a commercial relationship in which an independent intermediary, the agent, acts on behalf of a principal in negotiating or concluding sales contracts for goods or services, without becoming a party to those contracts itself.
2. What is an agency agreement?
An agency agreement governs the relationship between an independent commercial agent and its principal and provides that the agent, in return for remuneration, intermediates in the conclusion of commercial contracts between the principal and third parties. In many cases, the commercial agent is considered the weaker party vis‑à‑vis the principal. As a result, the law contains mandatory provisions protecting the agent, from which the principal cannot contractually deviate to the detriment of the agent.
3. What are the rights and obligations of an agent under an agency agreement?
The agent is obliged to actively seek customers on behalf of the principal and to mediate in the conclusion of contracts, acting with due care and loyalty. This means that the agent must prioritise the interests of the principal and behave as a diligent contractor. The agent performs its activities independently and is not subordinate to the principal.
4. Is an agent entitled to commission?
Yes. Commission is an essential element of an agency relationship and effectively constitutes the agent’s remuneration. An agent is entitled to commission on contracts concluded through its mediation and, in certain cases, also on contracts concluded without its direct involvement. While the amount and calculation of commission are often contractually agreed, the law contains mandatory provisions to protect the agent.
5. May an agent act for multiple principals?
In principle, an agent may act for multiple principals, as the agent operates as an independent entrepreneur. This may be restricted, however, if exclusivity has been agreed, if there is a conflict of interests, or if a contractual non‑compete obligation applies.
6. What obligations does the principal have towards the agent?
Under both the law and the agency agreement, the principal has various obligations towards the agent. For example, the principal must enable the agent to properly perform its duties, including by providing product information, price lists and marketing materials. The principal must also inform the agent in a timely, complete and transparent manner of any circumstances relevant to the performance of the agency activities. Finally, the principal must correctly calculate and timely pay the commission due.
7. Is a non‑compete clause allowed for an agent?
Yes, a non‑compete clause may be included in the agency agreement to protect the principal against competition by the agent after termination. Such a clause must be agreed in writing and is limited to the goods or services and the territory in which the agent was active, for a maximum duration of two years. The law protects the agent by rendering the clause invalid if the principal unlawfully terminates the agreement, and courts may mitigate the clause if it is unreasonable. This ensures that the agent is not unduly restricted in its future business activities.
8. Can an agency agreement be terminated?
Yes. An agency agreement may be concluded for a fixed or indefinite period. If a fixed‑term agreement is continued after expiry without express renewal, it automatically converts into an agreement for an indefinite period. For agreements of indefinite duration, the agreed notice period applies. If no notice period has been agreed, the statutory notice period applies, which depends on the duration of the relationship.
9. What is goodwill compensation?
Goodwill compensation is a financial compensation to which an agent may be entitled upon termination of the agency agreement, where the agent has brought in new customers or significantly expanded existing customer relationships from which the principal continues to benefit after termination. The law sets strict conditions for entitlement to goodwill compensation.
10. Why is legal guidance important in agency relationships?
Agency may appear to be a straightforward form of cooperation, but its legal framework is complex and contains many mandatory provisions. As a result, agency relationships involve numerous legal pitfalls, with disputes often arising in relation to competition restrictions, commission, goodwill compensation and termination. A carefully drafted agreement and timely legal advice are therefore essential to manage risks effectively. In a follow‑up article, we will explore specific agency‑related topics in greater detail to further inform you.
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