Commercial Agency Contracts in the USA

Practical Guide

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How are agency agreements regulated in the U.S.A.?

To understand the regulation of commercial agency agreements in the U.S., it is helpful to remember the interplay between federal and state statutory and common law in the U.S. legal system. Under the U.S. Constitution, all power not specifically reserved for the federal government resides with the states. Federal law has exclusive jurisdiction only over certain types of cases (e.g., those involving federal laws, controversies between states and cases involving foreign governments), and share jurisdiction with the state courts in certain other areas (e.g., cases involving parties that reside in different states). In the vast majority of cases, however, state law has exclusive jurisdiction.

Commercial agency is regulated at the state level rather than by U.S. federal law[2]. Almost two-thirds of the U.S. states have adopted specific legislation for commercial agency relationships with non-employees. Most state statutes regulating commercial agency relate to the relationship between a principal and an agent that solicits orders for the purchase of the principal’s products, mainly in wholesale rather than retail transactions (although state law often has special rules for agency relationships with respect to real estate transactions and insurance policies). Typically, state law in this area follows the common law definition of agency, which imputes a fiduciary duty upon the agent for the benefit of the principal to act on the principal’s behalf and subject to the principal’s control.

A second, overarching theme of note to understand the regulation of commercial agency agreements in the U.S. is the primary importance of the doctrine of freedom of contract under state law jurisprudence. As the doctrine’s title suggests, as a matter of policy, courts interpreting a contract generally will seek to respect its terms. Exceptions exist where public policy requires otherwise (e.g., in the consumer or investor context, in cases of adherence contracts or where unconscionable terms are found to exist). As a result, state law generally contains few mandatory, substantive terms that are superimposed on the relationship between principal and agent in an agency arrangement. With certain exceptions (i.e., under certain state franchise regulation where the relationship is deemed to be a franchise under such law), the parties are generally free to contract as they wish in areas ranging from terms of payment to risk allocation to other commercial terms.

The general legal provisions applicable to agency agreements

State laws on agency mainly address commissioned agency, and, where in force, are primarily aimed at ensuring that the principal timely pays the agent the commissions that are owed by imposing liability on the principal for a multiple (often two to four times) of unpaid commissions, as well as for reimbursement of the agent’s attorneys’ fees and costs incurred in collecting the unpaid amount. Other states further require that agency agreements satisfy certain formalities, including that they be in writing (under the so-called “Statute of Frauds” in force in most states) and that they contain specified information (i.e., how earned commissions will be calculated). A minority of states further impose substantive requirements, such as a minimum notice period for termination, the obligation to payment commissions on certain post-term shipments or those in process at expiration or termination of the agency agreement.

New York law does not impose formalities for the creation of an agency relationship. In fact, under New York law, absent circumstances under which New York’s general Statute of Frauds rules apply as set forth in § 5-701 of the General Obligations Law, parties may be deemed to be in an agency relationship even without signing an agreement evidencing the agreement consideration or any writing which evidences their agreement. New York law does regulate the payment of sales commissions under New York labor law[3]. New York labor law defines a sales representative as an independent contractor who solicits orders in New York for the wholesale purchase of a supplier’s product or is compensated entirely or partly by commission[4]. However, New York labor law does not otherwise regulate meaningfully the actual sales representative relationship.

[1] Eric D. Kuhn is a corporate partner, and Andres Sardi is a corporate associate, at Becker, Glynn, Muffly, Chassin & Hosinski LLP, a general practice international law firm in New York City. Both Messrs. Kuhn and Sardi concentrates their practice on international business transactions and counseling. Mr. Kuhn’s practice is particularly focused on advising European and other non-US industrial clients on M&A and similar corporate transactions and as outside general counsel with regard to their investments and activities in the United States.
[2] As Messrs. Kuhn and Sardi are licensed to practice law in the State of New York, this article provides information on agency matters with a focus on the law of the State of New York. Information as to the laws of other states is based on general research and experience with those states only.
[3] N.Y. Lab. Law §§ 191(1)(c), 191-a, 191-b, 191-c.
[4] Id. § 191-a(d).

What are the differences from other intermediaries?

Under the law of New York and the majority of states, an “agent” is a person or entity who, by agreement with another called the “principal,” represents the principal in dealings with third persons or transacts business, manages some affair or does some service for the principal. The key elements of an agency are: (i) mutual consent of the parties; (ii) the agent’s fiduciary duties, and (iii) the principal’s control over the agent. A principal may act on a disclosed, undisclosed, or partially disclosed basis in dealing with third parties.

The purpose of an agency may be broadly defined, and ultimately a principal may appoint an agent to perform any act except those which by their nature require personal performance by the principal, violate public policy or are illegal.


A defining element of agency under New York law and the law of the majority of states is the principal’s control over the agent. Indeed, whether the principal will be bound by the agent’s acts will depend, in large part, on whether the agent had actual or apparent authority to act on behalf of the principal. Separate from the question whether an agent’s acts bind the principal is the question whether the agent’s actions create a permanent establishment of the principal under applicable rules of taxation (as further discussed below) and/or an employer-employee relationship under applicable employment law in the agent’s jurisdiction, thereby potentially subjecting the principal to onerous state and federal tax and employment law obligations. Two of the many factors considered in determining whether such a relationship could be characterized as one of employment include whether the agent (i) provides the services according to her own methods and (ii) is subject to the control of the principal (other than with respect to the results of the agent’s work). Both analyses are specific to fact and circumstances.

Differences from other intermediaries

The main difference between an agent and a distributor is essentially one of ownership and risk. While an agent acts on behalf of the principal, who continues to own the product or service, distributors take ownership and risk (i.e., of the product) and trade on to their own risk and behalf.

The distributor assumes liability, i.e., legal responsibility for one’s acts or omissions. As the distributor takes ownership, he incurs a greater degree of risk than an agent in the course of his business. On the other hand, an agent is a self-employed intermediary, as an independent contractor, who has continuing authority to negotiate on behalf of the principal. The agent may negotiate and trade on behalf of and in the name of that principal. As he does not take ownership of the goods, the agent does not take on responsibility.

Furthermore, because a distributor is typically an unaffiliated third party acting on its own account rather than on behalf of the supplier as principal, distribution agreements are subject to greater regulation under U.S. federal and state antitrust law. Such law, among other things, (i) regulates whether and the degree to which a supplier in a distribution arrangement may seek in a contract or otherwise to dictate the price at which the distributor will resell products supplied; (ii) imposes restrictions on suppliers that engage in “dual distribution” (selling product directly as well as through a distributor); and (iii) may limit the suppliers’ ability to sell product to different distributors at a different price. Antitrust law also regulates exclusivity and selective distribution arrangements, as well as distribution relationships in certain industries (e.g., federally: automobile manufacturers and petroleum; at the state level, heavy equipment, liquor and farm equipment industries).

Furthermore, distribution agreements often may resemble franchise arrangements, subjecting those arrangements to extensive federal and state regulation.

Besides the differences from commercial distributors, commercial agency relations must also be distinguished from franchise agreements, which is more regulated and have many implications regarding intellectual property rights.

Contrary to the U.S. state law governing commercial agency and distribution agreements[5], franchise arrangements in the U.S. are regulated at the federal and state levels. At the federal level, franchise arrangements are regulated by the U.S. Federal Trade Commission (“FTC”) under the so called “FTC Franchise Rule”, while at the state level franchise arrangements are typically regulated by state agencies. In New York, franchise arrangements are regulated by the New York Antitrust Bureau under New York’s General Business Law[6]. The FTC Franchise Rule applies everywhere in the U.S., while generally state franchise legislation requires contact with the state (e.g., the offer or sale of the franchise be made in the state, the franchised business be located in the state or the franchisor or the franchisee be a resident of the state).

Franchise law and regulation also provides, to some degree, an exception to the general freedom of contract doctrine that underlies U.S. state law on contracts, as these relationships are subject to significantly greater regulation than commercial agency and exclusive distribution arrangements. Indeed, some U.S. states impose certain mandatory commercial terms, usually relating to notice periods and grounds for termination, on the franchise relationship. More commonly, federal and state franchise laws require that the franchisor provide the franchisee with extensive disclosure with respect to the key elements of the proposed franchise and/or effect certain registration filings with respect to the franchise. This greater degree of regulation at the state and federal levels is based on the view that the franchisee in a franchisor-franchisee relationship requires greater protection than parties to commercial agreements generally, owing to disparities in experience, sophistication and resources between franchisor and franchisee.

Under the FTC Franchise Rule, a franchise exists if the following elements exist: (i) the franchisee is given the right to distribute goods and services that bear the franchisor’s trademark, service mark, trade name, logo or other commercial symbol; (ii) the franchisor has significant control of, or provides significance to, the franchisee’s method of operation; and (iii) the franchisee is required to pay the franchisor (or an affiliate of the franchisor) at least US$500 before (or within 6 months after) opening for business.

[5] With the exceptions relating to federal antitrust law as noted in the foregoing chapters on U.S. law above.
[6] N.Y. Gen. Bus. Law §§ 360, et seq.

How to appoint an agent in the U.S.A.

Oral agreements are enforceable under the law of the majority of states unless the Statute of Frauds (which has been adopted by most states) applies. Under the Statute of Frauds, certain agreements are only enforceable if reduced to writing. The Statute of Frauds generally applies to contracts for the sale of goods under the Uniform Commercial Code as adopted by an individual state. In many states, including New York, similar rules have been enacted to govern agreements that do not involve strictly the sale of goods. Under New York’s Statute of Frauds[7], any agreement – including commercial agency – that cannot be performed within one year’s time or completed within a lifetime must be in writing. There is no particular format that the writing must follow to be enforceable. Any kind of writing is sufficient, including notes or memoranda, as long as they are signed by the party to be charged and other elements necessary for contract formation are satisfied under general rules of contract.

Generally, U.S. state law does not impose any registration or filing requirements with respect to agency relationships. One notable exception is for agency relationships that are “franchises” or “business opportunities” under state or federal law.

[7] N.Y. Gen. Oblig. Law § 5-701 (a)(1).

How are the agent’s exclusivity rights regulated in the U.S.A.?

State law generally does not contain mandatory provisions on exclusivity. Indirectly, certain rules (such as the Statute of Frauds under New York law that requires that exclusivity provisions be in writing if they will exceed one year) may apply. Otherwise, parties to a commercial agency arrangement generally may agree contractually on the terms of exclusivity, including whether to (i) to prohibit the agent from entering into agency arrangements with other principals covering the same subject matter within the same territory; (ii) to allow the principal to deal directly with customers located in the same territory without the agent’s involvement; (iii) to limit marketing and sales through the internet (including whether to prohibit the same through the principal’s website and/or whether the agent may do so through its own website); and (iv) a commission is due to the agent on sales made by the principal online to customers in the territory.

Generally, default state law does not provide for an agent’s right to commissions on online sales; these must be agreed to contractually. If an agent has exclusivity rights, sometimes parties agree contractually that online sales made to a designated territory, designated customers and/or designated resellers should be counted as a “sale” originated by the commercial agent for purposes of calculating the applicable commissions or sales targets.

Non-Competition Covenants in Agency Agreements in the U.S.A.

Non-compete clauses are fairly common in commercial agency agreements. These provisions are generally enforceable under state law. As outliers, certain non-compete provisions could be subject to challenge under federal or state antitrust laws as an unreasonable restraint of trade (e.g., pursuant to Section 1 of the Sherman Antitrust Act of 1890 (the “Sherman Act”) or pursuant to Sections 340-347 of New York’s General Business Law of 1899 (the “Donnelly Act”)). Such challenges have been rare and have been generally unsuccessful absent unusual facts.

State courts often scrutinize contractual provisions that purport to restrict competition after expiration of the term of the agency agreement. Under antitrust (Sherman Act § 1, and the Donnelly Ac § 340) and common law principles, such covenants must be reasonable in duration and scope to be enforceable[8]. If found to be unreasonable in scope, states differ in their treatment of the offending contractual provision. In some states (including New York), judges will enforce the covenant only to the extent reasonable (modifying the provisions to remove offensive portions under the so-called “blue pencil” rule); in other states, an overly broad covenant will be completely voided. In New York and certain other states, courts generally uphold non-compete covenants if, in addition to reasonableness, the covenant protects a legitimate business interest. It is worth noting that in California non-compete covenants are generally unenforceable (except in limited circumstances, such as business sale transactions[9] and business dissolution[10].

Often, whether parties to an agency arrangement agree to a non-competition provision will depend in part on whether the agent has exclusivity rights. Where an agent does not have exclusivity rights, often the principal has leverage to demand that the agent agree not to sell competing products.

As noted, post-termination non-competition covenants are viewed more skeptically by the courts, and may be unenforceable for several reasons, including whether the non-competition undertaking is supported by the payment of additional consideration by the principal, and the undertaking’s “reasonableness”, in terms of geographic scope and duration.

For these reasons, often a principal seeks to achieve similar protection through post-termination confidentiality and non-solicitation clauses rather than a post-termination non-competition clause. Such provisions often as a practical matter provide the principal with adequate protection on the key concerns that a non-competition provision typically seek to address – deterring the agent from poaching customers and employees after termination. However, (a) confidentiality provisions alone are not ideal for this purpose as they do not prevent the commercial agent from reaching out to a customer or competitor and the principal would need to find that the agent used its sensitive information without authorization and (b) some of the enforceability concerns described above may apply to the non-solicitation obligation.

[8] See Worldhomecenter.Com, Inc., v. PLC Lighting, Inc., 851 F. Supp. 2d 494, 501-02 (S.D.N.Y. 2011).
[9] See Edwards v. Arthur Andersen LLP, 189 P. 3d 285, 290-91 (Cal. 2008).
[10] See Gordon v. Landau, 321 P.2d 456,459 (Cal. 1958).

Is it possible for an international agency agreement to be governed by a foreign law?

It is possible to choose the application of foreign law in an agency agreement, simply by a contract disposition. New York courts typically recognize foreign governing law clauses. However, the question of whether a particular New York court will enforce a choice of governing law clause is not straightforward.

The New York Court of Appeals has held that as a general matter, the parties’ manifested intentions to have an agreement governed by the law of a particular jurisdiction are honored[11]. Likewise, the Second Circuit has held that in the absence of a violation of a fundamental state policy, New York courts generally defer to the choice of law made by the parties to a contract, while also noting that New York law authorizes a court to disregard the parties’ choice when the “most significant contacts” with the matter in dispute are in another jurisdiction[12].

In any event, while the intention of the parties is a significant factor under New York law, it is not conclusive. In New York, it is required a minimum contact with the state to invoke New York rules on agency agreements[13].

Therefore, it is best to select a jurisdiction’s law that not only is acceptable to the parties, but that also has a substantial relationship to the parties themselves or to the performance of their obligations.

Absent any choice, the law that governs the contract would depend on the places where the services were rendered, or the products were sold. It is a matter to be addressed and solved under the conflict of laws, which is also different in every state.

We also note, that Under § 5-1401 of New York’s General Obligations Law, parties to an agreement may choose New York law to apply to their agreement if the underlying transaction involves US$250,000 or more, whether such contract bears a reasonable relation to the state. This applies even where New York conflict of laws rules would otherwise result in the application of the law of another jurisdiction[14].

[11] See Freedman v Chem. Constr. Corp., 43 N.Y.2d 260, 265 (1977). See also: Terwilliger v. Terwilliger, 206 F.3d 240, 245 (2d Cir. 2000) and Donenfeld v Brilliant Tech. Corp., 96 A.D.3d 616, 616 (1st Dept. 2012).
[12] See Cargill v Charles Kowsky Res., Inc., 949 F.2d 51, 55 (2d Cir.1991). See also: Zuckerman v. Metro. Museum of Art, 307 F.Supp.3d 304, 324 (S.D.N.Y. 2018) and Brink's Ltd. v. South African Airways, 93 F.3d 1022, 1030–31 (2d Cir.1996).
[13] See D&R Global Selections, S.L. v. Bodega Olegario Falcon Pineiro, 29 N.Y.3d 292, 300 (2017). See also: Burger King Corp. v. Rudzewicz, 471 U.S. 462, 464 (1985).
[14] See IRBBrasil v. Resseguros, S.A. v. Inepar Investments, S.A., 20 N.Y.3d 310, 316, 958 N.Y.S.2d 689, 692 (N.Y. 2012).

Dispute resolution clauses in agency agreements in the U.S.A.

Under the law of the majority of states (including New York), parties are free to agree to resolve disputes arising from a commercial agency agreement by amicable settlement, arbitration or litigation. Although previously disfavored for antitrust cases, agreements to arbitrate are broadly enforced under the Federal Arbitration Act 9 U.S.C. § 1, et seq[15].

Under § 5-1402 of New York’s General Obligations Law with respect to venue, if parties elect New York law to govern their agreement, the transaction involves an amount of $1 million or more and the parties agree to submit to the jurisdiction of a New York court, a New York court is required to hear the related action. Although there have been cases to the contrary, New York law further provides that a New York court may not stay or dismiss such an action on the grounds of forum non conveniens[16].

[15] See Stolt–Nielsen S.A., v. Animalfeeds Int’l Corp., 559 U.S. 662, 688 (2010).
[16] N.Y. C.P.L.R. § 327(b).

Recognition of a judicial or arbitral order issued abroad

Foreign judicial and arbitral decisions in commercial matters are generally recognized and enforceable in the U.S., subject to certain conditions and exceptions. In summary, it is necessary to go to court first, which is also a matter of state law.

In most jurisdictions in the U.S., the recognition and enforcement of foreign judgments is governed by local domestic law and the principles of comity, reciprocity and res judicata (that is, that the issues in question have been decided already).

Enforcement of foreign judgements cannot be accomplished by means of letters rogatory in the U.S. Under U.S. law, an individual seeking to enforce a foreign judgment, decree or order in the U.S. must file suit before a competent court. Such court will determine whether to recognize and enforce such foreign judgment, decree or order.

Recognition of judgments by foreign courts is not automatic in New York. To be eligible for recognition in New York the grounds for recognition in New York Civil Procedure Law & Rules (CPLR) 5301 through 5309 must be met. This statute adopts the Uniform Foreign Country Money-Judgments Recognition Act as part of the law of New York.

The recognition and enforcement of foreign arbitral awards is also possible based on the “New York Arbitration Convention” or the “New York Convention”, as it is one of the key instruments in international arbitration. The New York Convention applies to the recognition and enforcement of foreign arbitral awards and the referral by a court to arbitration.

Agency agreement termination

State contract law does not impose any specific notice period requirements on commercial agency agreement, except for specific statutory exceptions (i.e., under the law of certain states for arrangements that are deemed to be franchise agreements, business opportunities or dealership agreements).

It is common practice in the U.S. for commercial agency agreements to provide that the agreement may be terminated by either party, at its discretion, with a certain advance notice (usually 30 days). Such provisions are generally enforceable, except to the extent that the agent has made capital investments to perform, at the insistence, or at least with the knowledge, of the principal, and has not been given a reasonable opportunity to recoup those investments.

If a contract term is indefinite, a party can generally terminate the contract with advance notice (30 to 60 days in most cases) that is reasonable in light of the circumstances[17]. To determine the reasonableness of such term a party should consider factors such as: (a) the nature of the business affected; (b) the relationship of the parties (exclusive relationships may require longer notice); (c) whether the supplier required or encouraged the distributor to invest capital to perform its obligations, in which case the supplier may terminate the agreement only for a material breach or after the distributor has been given a reasonable opportunity to recoup its investment; and (d) whether the agreement is deemed a franchise, business opportunity or dealership agreement.

[17] N.Y. U.C.C. § 2-309(3).

When is earlier Agency Agreements termination possible?

State law generally does not contain “just cause” provisions that allow a party to terminate early an agency agreement. Furthermore, as a matter of terminology, in the United States “just cause” might be confused with the term, “for cause”, an event that allows for termination by an employer by an employee. In U.S. nomenclature, early termination rights are typically triggered by “events of default” that are negotiated and agreed to by the parties in the agency agreement.

Typical events of default in an agency agreement include: (a) the other party’s “material” breach of the agreement (that is incurable or is not cured within a reasonable time (e.g., 30 days) after receipt of written notice) (b) the other party’s bankruptcy, insolvency, or financial distress (although this latter category may be unenforceable against a debtor during a bankruptcy proceeding, these events of default are typically included in commercial agreements as they can be triggered by other related events – e.g., inability to pay debts as they become due). Other events of default can include cross-defaults (breach and/or subsequent termination of any other contract), the change of control of a party or failure of certain key individuals to be acting for the account, and, in cases in which the agent has exclusivity rights, annual gross or net sales that are below certain agreed minimums.

Absent specified events of default or language on termination, under state contract law generally, a party to a contract can terminate upon the material breach of the other party of its obligations (and failure to cure). Such materiality requires a factual analysis under applicable state law. For instance, in New York, courts have defined a “material” breach as a breach “that goes to the root of the contract[18].” This requires that the breach be so substantial and fundamental that it strongly tends to defeat the object of the parties in making the contract[19]. Often New York courts find that a breach is material if (a) a party fails to perform a substantial part of the contract or one or more of its essential terms or conditions, (b) the breach substantially defeats the contract’s purpose, (c) the breach is such that upon a reasonable interpretation of the contract, the parties considered the breach as vital to the existence of the contract or (d) a party receives something substantially less or different from that which it bargained for[20].

Accordingly, parties to an agency agreement are well served by thinking out with specificity what key events (or non-events) should allow for early termination by the non-breaching party and include the same as events of default in the agency contract.

[18] See Frank Felix Assoc., Ltd. v. Austin Drugs, Inc., 111 F.3d 284, 289 (2d Cir. 1997).
[19] See Smolev v. Carole Hochman Design Grp., Inc., 913 N.Y.S.2d 79, 80 (1st Dep't 2010).
[20] See Viacom Outdoor, Inc., v. Wixon Jewelers, Inc., 25 Misc.3d 1230(A), 2009 WL 4016654 (N.Y.Sup.), citing 23 Williston on Contracts § 63:3 (4th ed.).

Termination indemnity for agency agreements in the U.S.A.

State law (including New York law) typically does not require a compensation payment (often referred to outside the U.S. as an “indemnity”) when a commercial agency agreement expires or is terminated in compliance with the terms of the agreement. As noted, an exception to the foregoing, certain states require that a commissioned agent be paid commissions on orders in process at the end of the relationship.

May a commercial agent be considered as a “permanent establishment” in the U.S.A. of a foreign principal Company?

Generally, a foreign principal is not deemed to have a permanent establishment in the U.S. if it carries on business through an independent commercial agent (without any other contacts or activities in the United States). However, if the agent is deemed a “dependent agent”, the foreign principal may run the risk of being deemed to have a permanent establishment in the U.S. for U.S. tax purposes.

The question of whether a commercial agent is independent is inherently highly facts-and-circumstances dependent. Factors considered in this analysis include, among others, whether the agent has the authority to bind the principal and whether the agent carries out a material portion of contract negotiation ultimately signed by the principal.

More generally, whether a foreign principal has a U.S. permanent establishment, not based solely on the agency agreement, is also depending on facts-and-circumstances, under analyses under the U.S. Internal Revenue Code or, if in place, the applicable U.S. income tax treaty between the United States and the principal’s country of origin.

What are the rights and obligations of the agent under U.S. laws?

Generally, the following are the most important duties of the agent under state common law:

  • agent must not act outside of its express and implied authority;
  • agent must use care, competence and diligence in acting for the principal;
  • agent must obey the principal’s instructions as long as they are legal;
  • agent must avoid conduct which will damage the principal’s business;
  • agent must not act for an adverse party to a transaction with the principal;
  • agent cannot compete with the principal in the same business in which the agent acts in such capacity for the principal without the principal’s consent;
  • agent must provide the principal with information relevant to the marketing of the principal’s products;
  • agent must separate, account for and remit to the principal all collections for the principal’s account and other property of the principal;
  • agent must not receive compensation from any third party in connection with transactions or actions on which the agent is acting on behalf of the principal;
  • agent must maintain the confidentiality of, and not misuse, the principal’s confidential information.

The agent is subject to a general duty of good faith in the performance of its responsibilities and dealings carried out on behalf of the principal under an agency agreement. However, the agent’s duty generally will not override the specific terms provided for in the agreement between the parties. Under New York law, the agent owes the principal duties of loyalty, obedience and care. Under these duties, an agent cannot have interests in a transaction that is adverse to its principal (e.g., self-dealing or secret profits), the agent must obey all reasonable directions of the principal and the agent must carry out its agency with reasonable care (which includes a duty to notify the principal of all matters that come to the agent’s knowledge affecting the subject of the agency).

What are the rights and obligations of the principal under U.S. laws?

The following are the most important duties of the principal under state common law:

  • principals must promptly pay terminated agents the commissions that they are owed; in most states, failure to pay can result in penalties, including multiple damages. Some states apply similar penalties to failures to pay commissions in a timely fashion during the term of the relationship; in contrast, a few states require that a commission be paid on transactions in the pipeline at the time of termination;
  • under the law of some states, an agency arrangement must be in writing, and certain formalities complied with, for the agency arrangement to be binding. As noted in Section I.1 above, these mainly relate to specification of the basis of commission calculation. Several states also require that agents be provided, and in some cases sign, receipts for copies of their agency agreements.

Generally, under state law, principal and agent alike are required to act in good faith in performing their obligations in an agency relationship, subject to the express terms agreed to in the agency agreement. Additionally, under the law of some states, the principal is required to indemnify the agent against liabilities vis-à-vis third parties arising out of the performance of the agent’s duties, to compensate the agent reasonably for its services and to reimburse the agent for the reasonable expenses it incurred in carrying such service. New York law does not provide for any mandatory obligations by the principal in favor of the agent in this regard (New York courts having constantly held an agent’s right to indemnification from a principal is based on contract)[21].

[21] See McDermott v. State, 50 N.Y.2d 211, 216, 428 N.Y.S. 2d 643, 646 (N.Y. 1980) (citing McFall v. Compagnie Maritime Belge (Lloyd Royal), S.A., 304 N.Y. 314, 326 (N.Y. 1952)), accord. Riviello v. Waldron, 47 N.Y.2d 297, 306, 418 N.Y.S.2d 300, 305 (N.Y. 1979), Rock v. Reed-Prentice Div. of Package Mach. Co., 39 N.Y.2d 34, 39, 382 N.Y.S.2d 720, 722 (N.Y. 1976).

How can the commercial agent be remunerated?

There are no specific federal or state regulations regarding commissions or stock consignments generally in commercial agency agreements. Generally, provisions regarding commissions, including the right to the same at and after contract termination or expiration, loss of commission rights and the right to inspect the principal’s books are provided for contractually.

We do note an exception: in some U.S. government contracts suppliers are required to certify that they are not paying commissions to non-employees. Furthermore, some federal funding of purchases by foreign buyers carries with it restrictions on commissions payable by the sellers.

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