Commercial Agency Contracts in Italy

In Italy, commercial agency agreements are mainly regulated by Articles 1742 to 1753 of the Civil Code. These law rules have been repeatedly modified following the adoption of the European Directive 653/86/EC (See EU part of this Guide).

In addition to the Civil Code rules, Collective Bargaining Agreements (“Accordi Economici Collettivi”, or “AEC”) also contain important rules governing agency agreements.

AECs are agreements made on a regular basis between associations representing principals and agents in different sectors (for example manufacture, trade, and several others).

Most AECs are not laws, they are collective agreements which bind only those principals and agents who are part of those associations.

However, most of agency agreements between Italian principal and Italian agents are governed by AECs.

In general, AECs intend to implement the Civil Code rules and those of the Directive 653/86. However, contractual AECs often deviate from those rules, and some differences are substantial (see for example the rules on unilateral modifications of certain contract terms; termination notice periods; remuneration for the post-contractual non-competition covenant; termination indemnity).

This has caused issues of compliance with the Civil Code and the EC Directive which are still unresolved by the courts.

With particular regard to the contract termination indemnity, some rulings from the EU Court of Justice have established that the AEC regime is in conflict with the Directive, yet the Italian courts’ constant jurisprudence still keeps the AECs’ indemnity provisions in force.

It is commonly believed that AECs’ geographical scope of application is limited to the Italian territory. Therefore, they often apply to agency agreements which are governed by Italian law and are performed by the agent in Italy, when both parties or at least the principal are members of the associations stipulating the AECs.

In international agency agreements, AECs generally apply in limited circumstances, mainly when the parties expressly refer to them in the contract, or are de facto applied; to the latter case a foreign principal should pay special attention as it might lead to a “hidden” application of the AECs.

Although agency agreements are quite heavily regulated in Italy, there is certainly still room for the parties’ freedom in structuring the agreement properly and seeking to include clauses that protect them adequately. Yet, the complex Italian system needs to be taken into consideration in a careful drafting exercise.

According to Italian law an agent is an individual or an entity being appointed to promote stably the conclusion of contracts in a specified area on behalf of another party (the principal) and is remunerated for that task.

Unless otherwise agreed, an agent has exclusivity rights in the area for which he has been appointed (which is typically a geographical area, however, it could be a range of customers, and/or a product range).

On the other hand, again unless otherwise agreed, an agent may not act in competition with the principal within the area assigned to him throughout the term of the agency relationship. The non-competition covenant may be extended to a further period after termination of the agency relationship, such period not to exceed 2 years. In this case, the non-competition covenant should be remunerated (see answer to question n.6 for more details) .

An agent is an independent contractor, and this feature distinguishes agents from employees entrusted with the promotion of sales in a particular area on behalf of the employer.

An agent is appointed to perform a continuous and stable promotional activity. This feature of stable and continuous collaboration distinguishes commercial agents from “occasional business finders” (“procacciatori d’affari”). A “procacciatore” is typically remunerated by a principal just for putting him in contact with another party for a single business, or in exchange for an occasional, not stable or continuous intermediation effort.

While in theory the above-mentioned distinctions seem quite straightforward, in practice it is often not easy to establish when a particular relationship is one between a principal and an agent, or between a principal and an occasional business finder, or between an employer and an employee.

There has been so much litigation around these issues, as qualifying a relationship in one way or another may lead to very different consequences especially when such relationship comes to an end. In qualifying the relationship from a legal point of view, courts will certainly look at whether a proper written agreement was made (which unfortunately does not happen so often) but the specific circumstances of the case will be reviewed too.

Distributors and agents are, again in theory, quite different. Distributors typically buy and resell a principal’s products or services in their own name and behalf in a specified area or country, while agents procure sales contracts which are then concluded by the principal in his name, or conclude – providing the agent is expressly empowered thereto – sale contracts in the principal’s name and behalf. Promotional and collaboration duties may be, however, quite similar.

It is worth noting that distribution agreements in Italy are not governed by law, and courts so far have not, to our knowledge, extended to distributors the rules and protections that the law recognizes to commercial agents.

Mediators have certain similarities with agents and occasional business finders since mediators also typically put two parties in contact for concluding a single business and are remunerated for that. However, the essential difference between the two is that a mediator – as stated by Article 1754 of the Civil Code – is totally independent from both parties, while an occasional business finder acts in the interest of a principal.

Generally, under Italian law, contracts can be formed in writing, orally, or even in a silent manner, by performance. .However, under Article 1742 of the Civil Code, an agency agreement must be evidenced in writing, and each of the parties is entitled to receive from the other party a document, signed by the latter, containing the content of the contract and the additional clauses. This right cannot be waived.

Italian agents must be registered with the “Enasarco”, a private law foundation which administers a supplementary pension fund for agents, and a termination indemnity fund, called “FIRR” (referring to the termination indemnity as calculated in accordance with the criteria set forth by the AECs).

Whenever an agency agreement is relevant for the Enasarco, the principal must notify the foundation that the agency agreement has been entered, within 30 days from the agreement date. Also, regular contributions to the Enasarco funds must be made throughout the whole term of the agreement. Finally, termination of the agreement will also have to be communicated.

The Enasarco will then pay the agent part of the termination indemnities provided for by the AECs from the regular contributions made during the relationship. The rest of the termination indemnities (if due) will be paid by the principal.

This registration requirement concerns mainly Italian agents of Italian and foreign principals. In some cases, however, it also concerns agents working outside Italian territory especially when there are links with Italy (for example, according to our Ministry of Labour, non-residing agents having their main centre of interest in Italy, and agents habitually operating in Italy but performing their activity abroad for no more than 24 months, shall be registered with the Enasarco). You can refer to this post on Legalmondo if you want to know more on this point.

Today, Italian agents still have registration requirements. Anyone wanting to start a business as a commercial agent in Italy, must file a “SCIA” (Certified Notice of Business Start) with the Chamber of Commerce having local jurisdiction. The Chamber of Commerce then registers the agent with the Register of Businesses if the agent is organized as a business entity, otherwise it registers the agent for a special section of the “REA” (List of Business and Administrative Information) of the same Chamber (see Legislative Decree n.59 dated 26.3.2010, implementing the Directive 2006/123/EC “Services Directive”).

Even though the absence of such registration does not invalidate the agency agreement, it is still a mandatory requirement.

Under Italian law, the concept of “exclusivity” is related to the “area” where the agent is engaged to operate under the agency contract. An “area” may be a geographical territory and/or a range of customers or a specific commercial channel, and/or the type of products that the agent is authorized to promote.

Within such scope, the agent’s exclusivity right is provided for by the law, unless it is agreed otherwise. Particularly, pursuant to Article 1743 of the Civil Code, the principal may not have more than one agent at the same time in the same area and for the same business.

In addition, Article 1748 of the Civil Code entitles the agent to commission on business concluded by the principal with customers pertaining to the area, or with the group or category of customers reserved to the agent, even when the transaction is made without the agent’s intervention (“direct business”), unless otherwise agreed.

It is however worth noting that Italian courts may consider a continuous interference by the principal in the agent’s territory as a breach of contract. It follows that a principal should make sure that his direct business in the agent’s territory is limited to occasional sales, and pay commission to the agent accordingly.

An interesting issue may arise when the principal sells to customers in the agent’s territory via third parties located in a different country (e.g. distributors, purchasing groups, subsidiaries) who purchase products from the principal and resell them to customers in the agent’s country.

By its judgment rendered on 17 January 2008 in the case C-19/07, the EUCJ stated in a similar case that a commercial agent entrusted with a specific geographical area does not have the right to a commission for transactions concluded by customers belonging to that area without any action, direct or indirect, on the part of the principal. The Italian Supreme Court has confirmed the same principle in a couple of cases. Therefore, to answer the question on whether the agent is entitled to a commission on transactions made by the principal via third parties, a case-by-case assessment of the principal’s role in the transaction appears to be necessary.

The parties should consider including specific clauses in the agency agreement to address such issues.

As well, appropriate clauses should be stipulated to regulate the agent’s right to be remunerated on transactions involving both his territory and other territories (e.g. orders from customers in the agent’s territory for products to be delivered in different territories, or the other way around) also considering that other agents in such different territories may have similar rights.

As far as the “exclusivity” rights of the principal are concerned, article 1743 of the Civil Code states that, unless otherwise agreed, the agent may not accept being appointed by more principals in competition between themselves, in the same territory and for the same type of business.

On the other hand, the agent may in principle represent more than one principal, provided they are not competitors. However, it is possible that an agent be bound to represent only one principal. The Collective Bargaining Agreements specifically regulate such type of agents (single-mandate agents) granting additional protection to them (e.g. by providing for longer notice periods in case of termination by the principal, and higher amounts of termination indemnity).

The parties to an agency agreement should therefore clearly specify the agent’s limitations to represent third parties or carry out business himself.

Assuming that most of the times the agent is prohibited to represent competitors or carry out competitive business himself, it is also advisable to define in the contract what “competitive business” means, in order to avoid any misunderstandings. A disclosure of the other principals the agent is representing – and may continue to represent - is also quite customary.

If the agent has exclusivity rights on a certain territory, as provided for by the law and/or by the contract, pursuant to Article 1748 of the Civil Code he is entitled to commission on each and every sale that the principal makes with all customers based in such territory, provided of course such customers and the products concerned are within the scope of the agency contract.

Online sales that the principal makes directly to such customers seem to be included in such rule, as exclusivity applies regardless of how the sale contract is entered into.

The agency contract may regulate this matter differently, provided that the clauses are clear, otherwise – as we have seen - the agent’s exclusivity rights are provided for automatically by law.

In some cases, principals may consider granting agents a commission on online sales, especially when there is a common interest to develop such sale method in order to increase business, and/or when the agent plays a role in online transactions (for example, the agent may perform post sale assistance, receive and handle claims from the customers, etc.).

Unlike the agent’s obligation not to compete with the principal throughout the term of the agency agreement - which is provided for by the law unless it is agreed otherwise - a similar undertaking needs to be expressly agreed upon in writing if it is to continue after the termination of the agency agreement.

Article 1751-bis of the Civil Code also sets forth the following further requirements (in addition to the written form) in order for such post-termination non-competition covenant to be valid:

• such covenant must be limited to the same territory, customers and type(s) of products or services which were the subject matter of the agency agreement; and
• the term of such covenant may not extend for more than two years following termination of the agency agreement;
• the principal must, on termination of the agency agreement, pay the agent a special indemnity in consideration for the non-compete undertaking. As the rule says, such indemnity is different by nature from the sale commission. This seems to mean the principal may not include the indemnity amount as part of the regular sales commissions.

According to article1751-bis, the indemnity mentioned in the foregoing paragraph must be commensurate with the duration and nature of the agency contract, and with the termination (goodwill) indemnity. The calculation of the indemnity should be agreed upon between the parties, taking the collective bargaining agreements into account. If the parties did not find any agreement, the court will determine the indemnity amount ex aequo et bono having regard to: 1) the average remuneration received by the agent during the term of the agreement, and the impact of such remuneration on the total agent’s income in the same period; 2) the reasons for the agreement termination; 3) the extent of the agent’s territory; 4) whether or not the agent was bound to represent only one principal.

The collective bargaining agreements set forth rules and criteria to calculate the post-termination non-competition covenant indemnity. It is important to note that the collective bargaining agreements do not provide for such indemnity to be paid to all agents but only to those established under certain legal forms (individuals, certain types of companies). It is also to bear in mind that collective agreements may be not applicable in many internationals agency contracts.

Considering all the above, whenever the parties agree on a post-termination non-competition covenant in an agency contract, they should draft the clause carefully keeping all the legal requirements into account, including how the indemnity should be calculated and paid.

Under Italian law, an agreement is deemed “international” in the presence of “situations involving a conflict of laws”. The situations which more often involve a conflict of laws in agency agreements– making them “international” - are (i) the principal’s seat being located in a country different from the agent’s seat; or (ii) the agreement being performed abroad, even when the principal’s and the agent’s seats are both located in the same country.

It is indeed possible for an international agency agreement to be governed by a law other than Italian law. First of all, this can be obtained by including a clear choice of law clause in a written agency agreement, having the effect of submitting the agreement to a foreign law. The conditions for the validity and effectiveness of a choice of law, as well as the limits of such a choice, are set forth in Article 3 of Regulation (EC) n.593/2008 (“Rome I” Regulation) (see EU part of this Guide).

A foreign law (i.e. a law other than Italian law) may govern an international agency agreement even in the absence of any choice of law, in particular, the law of the agent’s “habitual residence” (i.e. the place of central administration, or the principal place of business) shall apply pursuant to Article 4 of the Rome I Regulation (see EU part of this Guide).

An Italian principal should therefore be aware of this provision and, in order to avoid a foreign governing law in an agreement with a foreign agent, he should include in the agency agreement a clear choice of law clause stating that Italian law shall apply. Besides, to confirm the effectiveness of the above choice, it would be generally wise to couple such a provision with a clause stating that Italian courts have jurisdiction on any and all disputes. Conversely, a foreign principal in an agency agreement with an agent whose main place of business is in Italy, may wish to include proper choice of law and jurisdiction clauses if he wants to avoid Italian law to apply.

Choosing a foreign law (within the limits set forth by the Rome I Regulation) will necessarily exclude the application of the Italian Collective Bargaining Agreements (AEC).

Any disputes arising from an international agency agreement may be submitted to the jurisdiction of foreign judicial courts or foreign arbitrators.

This can be obtained through an agreement on jurisdiction. Art.25 of EU Regulation n.1215/2012 (“Brussels 1-bis” Regulation) allows for such agreement to be concluded in various manners (see EU part of this Guide).

However, the safest manner to agree on jurisdiction is to include a proper, clear choice of court clause in the agency agreement, specifying at least the country whose courts will have jurisdiction on any and all disputes arising from the agreement.

As regards the possible submission of disputes arising from an international agency agreement to foreign arbitrators, this is often possible as Italy is part of the most important international treaties on the recognition of arbitral awards (e.g. the New York Convention) and has its own civil procedural rules on international arbitration.

Therefore, it is generally possible to consider including a proper arbitration clause in an agency agreement.

However, in one case such a choice might prove ineffective. That is the case where an individual (or sole proprietorship) resident in Italy and with his main place of business in the same country is appointed as agent.

This is because disputes with individual Italian agents would fall into the exclusive competence of the labor courts (see Article 409 of the Civil Procedure Code).

It follows that agency relationships with individual agents in Italy are considered similar to employment matters and therefore an arbitration clause might be at risk of being judged ineffective as concerning a non-arbitrable matter. This however doesn’t seem to affect the validity of a choice of a foreign judicial court clause according to the Brussels 1-bis Regulation.

In the absence of any choice of a foreign judicial or arbitration court, the venue on disputes in an international agency agreement would be mainly regulated as follows.

Under Brussels 1-bis Regulation, and Italian private international law, as a general principle the defendant’s domicile forum has jurisdiction or, as an alternative to the “defendant’s forum”, Brussels 1-bis Regulation allows for litigation to be conducted before the “place of performance” courts (see EU part of this Guide).

Therefore, if an Italian principal wishes to submit all disputes with a foreign agent to Italian courts, or if a foreign principal wishes to submit the disputes to the principal’s courts, a proper choice of court/arbitration clause should be included in the agency agreement (taking into account any mandatory rules existing in the agent’s country).

The effectiveness of a choice of court clause is often to be evaluated in connection with the possibility to have the court judgment recognized and enforced in another country.

Agency agreements are meant to establish a standing and continuous co-operation between agent and principal.

Under Italian law, agency agreements may be entered into for a limited or an unlimited time. If a limited term is agreed, the agreement will expire and the relationship will naturally end on the expiration date as originally stipulated. Automatic renewal for further periods may apply only if expressly so agreed. Generally, an agency agreement for a limited term may not be terminated earlier unless in particular situations (for example, in case of substantial breach of contract).

If an agency agreement has no limited term, according to Article 1750 of the Italian Civil Code, either party may terminate it unilaterally at any time without cause, by prior notice from one to six months depending on the actual duration of the relationship when termination is notified.

Such notice period is: of one month, if termination is notified during the first year of the relationship; two months if notified during the second year; three months if notified during the third year; four months if notified during the fourth year; five months if notified during the fifth year; six months if notified during or after the sixth year.

It is worth noting that AECs provide for partially different (i.e. longer) notice terms. Therefore, it is important to ascertain whether or not AECs apply to a specific agency agreement.

Termination for breach is of course available. See the next paragraph for more details.

According to the general principles of Italian contract law (article1453 of the Civil Code) a party may obtain termination of the contract by court judgment, in case of breach of contract by the other party, provided the breach is of “no little importance” i.e. if the breach is material. In such cases, if the judge upholds the termination claim, he will declare the contract terminated by judgment.

Again according to the general contract law rules, a party may unilaterally terminate the contract without the need of court proceedings, in either of the following ways:

• by means of a formal notice to comply (art.1454 of the Civil Code), i.e. a formal communication whereby a party notifies the other of a material breach, warning that unless such breach is remedied within 15 days of receipt (unless a different deadline is agreed upon) the contract will immediately and automatically terminate by operation of law; or
• by means of an “express termination clause” (art.1456), i.e. a clause in the contract that specifies one or more contractual duties, whose breach entitles either or both parties to terminate the contract immediately without the need of a court judgment. When a party breaches any of the duties specified in the clause, the other party may notify immediate termination without notice. In principle, the party terminating the contract according to such clause need not prove that the breach was “material”, as it is supposed that the parties by including such breach in the express termination clause had mutually considered it to be material in any event.

The parties to an agency contract may avail themselves of any of the above termination rules.

In addition, courts often apply article 2119 of the Civil Code to the agency agreement, by analogy. This rule entitles either party in an employment agreement (employer or employee) to terminate the agreement immediately “by just cause”, i.e. a cause of such seriousness as not to allow the agreement to continue even on a temporary basis, being a material violation of the fiduciary relationship. A just cause may – but need not be a breach of contract by the other party: according to the case law, it may also be a conduct of the other party outside the agency agreement, having a negative influence on such party’s trustworthiness.

Here below are a few examples of breaches that courts often consider to be a justified reason for terminating the contract, by the principal or by the agent:

• breaches justifying termination by the principal: agent’s breach of the non-competition obligation, agent’s retention of money due to the principal, agent being completely inactive;
• breaches justifying termination by the agent: principal’s failure to pay commissions, principal’s breach of the agent’s exclusivity rights.

As regards the agent’s failure to meet certain results or sales targets, in principle an agent’s duty is to act professionally and endeavor to procure certain results to the principal, without however being liable if such results are not obtained, unless such an obligation (and the consequences of breaching it) are expressly agreed upon in a clear manner.

If the contract expressly entitles the principal to terminate the contract in case of failure by the agent to meet certain minimum sales targets, such a clause should in principle be deemed valid and enforceable.

However, some courts have established that, when a principal terminates the contract due to the agent’s failure to reach a sales target, despite such termination being expressly allowed for in the contract, the judge still has the power to assess whether the breach was so material as to justify immediate termination by the principal.

In view of the above, a principal should carefully assess all the circumstances before deciding whether to terminate the agreement when the agent fails to meet the agreed minimum targets: for example, the targets should be set reasonably, the reasons for such failures should be analyzed, it should be checked whether the diminution in sales only concerned that agent’s territory or other territories as well, whether the principal had tolerated previous similar breaches, etc..

In any event, it is always advisable to include in the contract in a clear and specific manner the breaches and other cases entitling a party to terminate the agreement, and the termination procedure.

If the principal terminates the contract due to a breach by the agent which is so serious as not to allow the contract to continue even temporarily, the agent is not entitled to the goodwill indemnity pursuant to art.1751 of the Civil Code.

Italian law entitles the agent to an indemnity if the agency agreement is terminated, according to Article 1751 of the Civil Code which implements Articles 17 and 18 of the EC Directive 86/653, particularly the so-called “German law type” of indemnity.

The indemnity is due to the agent if the following conditions are met:

• he has brought the principal new customers or has significantly increased the business with existing customers and the principal continues to derive substantial benefits from the business with such customers, and
• the payment of this indemnity is equitable in view of all the circumstances and, in particular, the commission lost by the commercial agent resulting from the business with such customers.

The amount of the indemnity may not exceed a figure equivalent to an indemnity for one year calculated from the commercial agent's average annual remuneration over the preceding five years and if the contract goes back less than five years the indemnity shall be calculated on the average for the period in question.

The indemnity or compensation referred to in Article 17 shall not be payable:

• where the principal has terminated the agency contract because of a default attributable to the commercial agent which is so substantial to prevent the relationship to continue even temporarily; or
• where the commercial agent has terminated the agency contract, unless such termination is justified by circumstances attributable to the principal or by circumstances attributable to the agent such as age, infirmity or illness in consequence of which he cannot reasonably be required to continue his activities; or in case of the agent’s death;
• where, with the agreement of the principal, the commercial agent assigns his rights and duties under the agency contract to a third party.

The grant of such an indemnity shall not prevent the commercial agent from seeking damages. In practice, the agent may claim damages in the event of the principal’s illegitimate termination or in the event of the agent’s termination due to the principal’s breach of contract.

The commercial agent shall lose his right to the indemnity, if he hasn’t notified the principal that he intends pursuing his entitlement within one year from the termination of the contract.

The parties may not derogate from the indemnity provisions to the detriment of the commercial agent, which means that a clause in the agency agreement denying in whole or in part the agent’s indemnity, would be invalid.

As said before, AECs also provide for various termination indemnities for commercial agents. Most of such indemnities are calculated as percentages of the total amount of commissions the agent has earned during the agency relationship, regardless of whether or not the agent has met the conditions set forth by Article 1751 of the Civil Code as described above.

Therefore, it can be surely said that such indemnities do not meet the requirements set forth by the EC Directive and the Civil Code. Following some EU Court of Justice rulings stating that such indemnities were in conflict with the Directive, the most recent AECs have only partially modified their indemnity system, introducing additional indemnity elements which in some way resemble the Directive principles.

Italian courts continuously state that the AECs indemnity system is valid (in cases where AECs apply) stating that the AEC regime is more favorable to agents as being a “minimum indemnity” system for those who do not meet the Civil Code requirements. In practice, the AEC indemnities will be granted to an agent unless he’s able to prove that by applying the Civil Code/Directive rules the would be entitled to a higher amount, in which case he will be granted such higher amount.

According to both the OECD double taxation treaty model and the Italian laws on income taxes, a commercial agent may be considered as a “permanent establishment” of a foreign company in Italy (namely, a “personal PE”) in certain cases.

Particularly, this may be the case when the agent is entrusted with the power to negotiate and conclude sale contracts in the foreign principal’s name and behalf, and exercises such power on a regular, continuous basis.

If a foreign company is considered to have a PE in Italy, then such foreign company is obliged to file an income tax return in Italy with respect to the income that has been produced in Italy, and pay taxes in Italy accordingly.

However, according to the same OECD and Italian law rules, there is no PE if the foreign company does business in Italy by means of a broker, a general commission agent, or other intermediary having an independent status and acting within the scope of their ordinary business.

The following criteria will help in assessing the independent status of an intermediary: the level of legal and business independency; the nature and extent of his duties; the instructions given and the degree of control exercised by the principal; the entrepreneurial risk.

There are many other important legal aspects to consider when appointing an agent in Italy. Only a few of them are mentioned here below.

Commissions are due when a sale contract is concluded, which means usually when the principal accepts the customer’s purchase order. The parties may however (and they often) derogate to such rule: for example, a principal may wish the agency agreement to state that commission’s right only accrues when the customer actually pays the purchase price.

An agent may not be generally held liable for the customers’ failure to pay, as the “star del credere” clause is no more allowed in Italy. It is merely possible for the agent to guarantee that the customer does not fail to pay with regard to individual business transactions of particular importance and such guarantee may not exceed an amount equal to the commission that would otherwise be due. Payment of commissions is due no later than within the strict time limits provided for by the Civil Code. The agent has strong inspection rights on the principal’s accounting books to verify the amount of commissions due to him. The agent may seek a court order if such inspection rights are denied.