Commercial agents are entitled to the indemnity and compensation provided for by law even if the agency agreement is terminated during a trial period, the Court of Justice of the European Union (CJEU) has recently asserted.
The legal status of commercial agents in the European Union is regulated by a Directive which sets out minimum protection which self-employed commercial agents must be given in all EU member states.
Among other measures, it provides that, in certain cases, a commercial agent is entitled, after termination of the contract with the principal, to an indemnity or compensation for damage. The agent is entitled to compensation for damage suffered as a result of a termination of contract, where they are hence deprived of the commission which they would have been entitled to should the contractual relationship have subsisted while, on the other hand, the principal enjoys substantial benefits.
Similarly, they can claim compensation for damage when such termination has impeded the agent from amortising the costs and expenses that they have incurred for the performance of the contract on the advice of the principal.
The agent cannot be denied indemnity or compensation on the sole ground that the termination of the commercial agency contract occurred during the trial period
The agent is entitled to an indemnity where they have brought the principal new customers or has significantly increased the volume of business with existing customers and the principal continues to derive substantial benefits from the business with such customers even after the termination of the relationship. Such indemnity must be equitable, taking into account particularly the commission lost by the commercial agent on the business transacted with those customers.
The facts of this case were briefly as follows. DTT concluded a commercial agency contract with CMR in terms of which CMR was required to sell 25 individual houses per year on behalf of Dtt. The contract provided for a 12 month trial period during which each party was allowed to terminate the contract, subject to notice being given. DTT terminated the contract around six months after its conclusion on the basis of the fact that CMR had made only one sale in five months and the objective set by the contract had therefore not been met.
CMR sought compensation from DTT for the loss resulting from the termination of the agency contract. The French national court seized of the case filed a preliminary reference before the CJEU, requesting guidance as to whether the commercial agent is, in terms of EU law, entitled to compensation/indemnity even where the agency contract is terminated during the trial period.
The court observed that the directive does not regulate the provision of a trial period but such a period falls within the scope of the freedom to contract of the parties and is not prohibited by the directive. It continued to note that the indemnity and compensation provided for by the directive are not intended to penalise termination of the contract. They are intended to indemnify the commercial agent for his past services from which the principal will continue to benefit beyond the termination of the contractual relationship or for the costs and expenses they have incurred in providing those services.
Therefore, the agent cannot be denied the indemnity or compensation on the sole ground that the termination of the commercial agency contract occurred during the trial period, as long as the other conditions for the award of the indemnity or compensation as set out in the directive subsist. The CJEU highlighted the fact that the objective of the directive is to protect the agent in his relationship with the principal. Hence, it concluded that, in the light of such an objective, the agent’s right to indemnity and compensation subsist even if the contract is terminated during the trial period.
The legal provisions found in the EU directive discussed above, have been transposed into Maltese law through the insertion of similar provisions in the Commercial Code. Such rulings of the CJEU serve to highlight how invaluable ‘the preliminary reference tool’ which national courts have the right to use actually is. It is through such CJEU rulings that a harmonised interpretation of EU law is ensured and that light is shed on certain grey areas of interpretation which often arise in practice.
Mariosa Vella Cardona is a freelance legal consultant specialising in European law, competition law, consumer law and intellectual property law.
mariosa@vellacardona.com