Commercial agency agreement

A commercial agency agreement is the contract by which an agent undertakes, against commission, to negotiate contracts for a principal and possibly to conclude them in the principal’s name. The agent is independent but enjoys statutory protection.

Legal basis

The regime is in Articles 7:428 to 7:445 of the Dutch Civil Code and derives from Directive 86/653/EEC. Article 7:428 gives the definition and Article 7:431 the entitlement to commission, including on orders received after the agency ends where the agent prepared them. Article 7:437 requires the principal to provide a commission statement and gives the agent access to the books. Articles 7:437 and 7:439 govern the notice period, which rises from one month in the first year to a maximum of four. Article 7:442 provides the goodwill indemnity: on termination the agent is entitled to compensation in so far as they brought in new customers or significantly increased turnover and the principal still benefits, capped at one year’s remuneration. Article 7:443 limits a non-compete clause to two years and to the allocated territory and customers.

How it works in practice

The distinction from a distributor is fundamental: a distributor buys and sells for its own account and has no statutory goodwill indemnity, an agent does. Contracts labelled distribution but which are in substance agency are assessed by the courts on their content. For a principal it pays to calculate the goodwill indemnity before terminating; for a successful agent it is a substantial sum.

Where it goes wrong

Principals terminate on too short a notice period and become liable in damages. A second error is excluding the goodwill indemnity, which cannot be done: the provision is mandatory in the agent’s favour. Third, commission on trailing orders goes unpaid, although the law provides for it.