The termination indemnity of a sales agent contract is the cornerstone of the sales agent status.
Specialized for over twenty years in commercial agent law, we assist our clients in negotiating the severance payment due to them.
In this regard, we advise our clients on their rights and obligations in this matter, the amount of compensation that may be claimed, how to claim it, the methods for recovering it, etc.
We ensure the negotiation of the indemnity with the opposing party.
In the absence of a friendly agreement, we represent our clients in court before the competent tribunal.
The payment of a termination indemnity depends on the circumstances of the termination of the contract
A commercial agent is an independent professional who is responsible for negotiating and, if necessary, concluding sales, purchase, rental or service contracts, on behalf of and for the benefit of his principal.
It may be a natural person or a legal person. The commercial agent is generally compensated on a commission basis, although this is not mandatory. The contract may be oral or written, but a written contract will better reflect the rights and obligations of each party. A written contract may be particularly useful at the termination of the commercial agent contract.
Whatever the case may be, the rules relating to the termination indemnity of the commercial agent contract relate to provisions of the Commercial Code. These are matters of public policy. They have also been clarified by case law.
Thus, the payment of a termination indemnity of a commercial agent contract is the principle in the event of contract termination. Conversely, the absence of payment of such an indemnity is the exception.
Commission of the sales representative
The amount of the end of contract compensation for a sales agent results from usage. It is calculated based on the remuneration received by the sales agent during the last years of the contract.
The contract termination indemnity for sales agent can be justified by the fact that the sales agent contract is a mandate of mutual interest.
Thus, among others exception to the law, p our’s business agent, such a severance payment :
- the resignation of the sales agent,
- the assignment of his contract by the commercial agent,
- the serious misconduct of the commercial agent justifying the termination of his contract by his principal.
However, the sales representative retains their right to the severance payment from the contract if, taking the initiative to terminate its relationship with its principal, the same shall be due to circumstances attributable to the latter.
How to calculate the termination indemnity of a commercial agent contract ?
The calculation of the termination indemnity for a sales agent is based on several criteria, primarily defined by custom and case law. Generally, the indemnity corresponds to approximately two years of average annual commissions received by the agent during the two or three most recent years of collaboration, validated by numerous judicial decisions. However, this calculation may vary depending on the circumstances of each contract termination.
Indeed, the Commercial Code provides that the indemnity must compensate the damage suffered by the agent in the event of contract termination, unless in certain exceptional cases. This indemnity thus allows to compensate for lost future income and the customer base developed over time.
In practice, the damage to the agent can therefore exceed two years’ commissions in certain cases.
Concrete example : If a sales representative earns an average of €40,000 in commissions per year, the severance payment may amount to approximately €80,000, subject to specific circumstances related to the contract, its execution, its termination, etc.
This estimate is a basis for calculation, but it may be negotiated depending on the specific features of the contract. It is therefore advisable to consult a lawyer specializing in this area to accurately assess the potential compensation taking into account recent case law.
Sales Representative Compensation: When is it due ?
The compensatory payment, provided for in Article L134-12 of the Commercial Code, is a right for the sales agent in the event of termination of the contract by the principal. This right is however subject to the circumstances of the termination. The payment is not due in the event of serious misconduct by the agent or his resignation, unless exceptions apply.
The concept of gross negligence has been clarified by case law, which considers it a negligence of such severity as to prevent any further collaboration.
Regarding termination initiated by the agent, if, by principle, it deprives him of the right to payment of a compensation, there are several exceptions. Indeed, when the termination by the agent of his contract is due to circumstances attributable to the principal (such as a radical change in the conditions of performance of the contract, for example), the agent retains the right to claim the compensatory payment provided for in Article L 134-12 of the Commercial Code.
For example : In the event that a sales agent decides to terminate the relationship due to a unilateral reduction in its commission rates imposed by the principal, the agent may generally terminate the contract and claim compensation, considering that the termination is caused by a substantial modification of its contractual terms of execution.
The sales representative may thus obtain a compensatory indemnity to compensate for lost revenue, acquired customer base, and personal investment in the development of the business.
Agent commercial termination: steps for claiming severance pay ?
When a commercial agent’s contract terminates, certain steps are essential to claim the termination indemnity. First, the commercial agent must notify his former principal, generally by registered letter with acknowledgment of receipt, in writing to formalize his claim. This request must imperatively intervene within a period of one year from the notification of the contract termination. Respect of this formality is crucial, otherwise the agent loses his right to receive the indemnity to which he is entitled.
If the principal disputes the payment of the compensation, negotiation may be considered to reach a friendly agreement. Otherwise, the commercial agent must refer the matter to the competent court in order to obtain the compensation to which he is entitled. Of course, the judicial claim by the commercial agent must be accompanied by all the evidence demonstrating the validity of the agent’s claim, both in principle and as regards the amount of the compensation claimed.
When preparing to initiate such a procedure, and even well in advance, the sales agent must gather all the elements necessary to prove the existence of his sales agent contract, its execution, the commissions he has received to that effect, the commissions that have not been paid to him wrongly, the termination of his contract by his principal, etc. These elements must also allow him to justify the amount of the indemnity claimed.
To resolve the matter of the sales agent commission with AUMANS AVOCATS
AUMANS AVOCATS (Resulting from the merger of FOUSSAT Avocats and DEROULEZ Avocats) assists its clients in the event of a breach of commercial agent agreement.
Specialized for over twenty years in commercial agent law (articles L 134-1 and following of the Commercial Code ), our law firm justifies a long experience in this area.
Our firm is also at your disposal to be by your side from the outset of your relationship with your counterparty and to assist you throughout the life of your contract.
Other reading on the subject:
- Article L 134-12 of the French Commercial Code of Law
- Compensation for termination of the commercial agent contract
- The status of commercial agents: recent court decisions
- Compensation of the commercial agent: the calculation bases, reminder of the principle by the French Court of Cassation [Supreme Court of Appeal]
