Commercial Agency Contracts in France

In France, to master the rules applicable to commercial agent contracts, it is necessary to know that the activity of agent can fall under two distinct regulations, one rather protective of the agent, and the other more flexible.

On the one hand there is the commercial agent stricto sensu ("agent commercial"), or statutory commercial agent, who has to meet a precise legal definition in order to benefit from a protective regime set by articles L 134 1 to L 134-17 of the French code of commerce. These articles result from the law of June 25, 1991 transposing the provisions of the EU directive n°86/653 of December 18, 1986 on commercial agents. These articles provide a fairly well-defined legal framework. In French domestic law, many provisions are of internal public order, in the sense that the principal and the agent cannot derogate from it ; the question is more delicate in the case of an international contract (see § 4. C below).

On the other hand, there is the so-called agent of common interest "mandataire d'interêt commun") which essentially falls under the provisions of the Civil Code applicable to the mandate (art. 1984 and seq. of the Civil Code) complemented by case-law. The legal framework for the activity of agents of common interest is much more flexible, even vague, because it refers to general rules. In addition, most of these rules are not of public order; consequently, the contract of agent of common interest may derogate therefrom.

The common point between these two forms of legal scheme lies in the fact that the commercial agent and the agent of common interest on both of agent ("mandataire").It represents their co-contractors (the principal). They both act on behalf of the principal insofar as they officially present themselves as the representative of the principal and they both act on behalf of the principal in the sense that their actions are binding upon the principal.

Generally speaking, when an agent acts on behalf of a company and its contract or activity cannot be analyzed as a commercial agent because it does not meet the conditions laid down by law and case law, judges recognize him as, at least, an agent of common interest (unless falling within another legal category set out in $ 2.a below). The following presentation will distinguish, where necessary, the rules applicable to the agent of common interest and to the commercial agent. It should also be known that the English word "agent" covers both a generic term which refers to the general category of mandate ("mandataire" and also a specific status ("agent commercial") abbreviated in English; foreign traders should be therefore cautious with the use of this word.

When a commercial operator plans to use the services of an intermediary (deliberately neutral or generic term), it does not have to contract ipso facto with a commercial agent.

Indeed, economically or practically speaking, an intermediary can have different missions and exercise them under different conditions. Therefore there are several contractual schemes available to this trader, which must be clearly distinguished from the status of the commercial agent to prevent the commercial agent's contract from being re-qualified into another contractual scheme, which would have the effect of creating legal uncertainty for both parties, or even exposing them to new obligations or responsibilities.

(a) Alternative contracts to agency contracts

Regardless of the fine distinction between commercial agent and agent of common interests (which will be mentioned in § b. below) it is possible to contract with a broker, a commissionary agent, an employee or a service provider. These four categories are more particularly discussed below because they can fulfill, economically or practically, close missions and thus create confusion as to the application of a particular status. There is less risk of confusion with distribution or franchise agreements as the former clearly implies the purchase and resale of products, materialized at least by purchase invoices and resale invoices, and the latter generally implies the provision of a fairly formalized know-how and distinctive signs under license terms.

• The brokerage contract
  

The broker, also referred to as a go-between (" courtier or " apporteur d'affaires") is not an agent in the sense that it does not represent his co-contractor. Its role is mainly to connect a seller and a buyer, leaving them negotiating all the terms of their potential contract. The broker does not intervene, in principle, in the negotiation (but it is not prohibited) and it is usually paid not on the result of the negotiation but on the entry into negotiations. The brokerage contract is very little regulated by law (except in certain very specific economic sectors) and the rights and obligations of the parties are therefore governed by the provisions of the contract and the uses of the sector in which they operate. The broker is not entitled to compensation at the end of its contract.

• The commission agent contract
  

The commission agent ("commissionaire") is not a true agent in the sense that if it acts on behalf of his principal, it acts with regard to third parties under its own name. In other words, upstream, it is considered as an agent in its relations with its principal, and as such it must respect the instructions of the latter and he does not buy the products that are simply entrusted to it, and downstream to the market, it claims to be a distributor selling products under his own name (but in fact according to the instructions and prices communicated by his principal). This contract therefore has a rather double nature. At the end of the contract, the commissionary agent is not entitled to compensation, unlike the agent of common interest or the commercial agent (one of the explanations lies in the fact that the customers are its customers and not those of the principal).

This contractual scheme can be interesting when a commercial operator wants to develop a sales network by using outlets managed by independents but which must respect many instructions received from their principal, especially in terms of pricing. Some networks known as "franchise networks" adopt this scheme (called then "commission-affiliation").

• The employment contract
  

The promotion of products and services of a commercial operator may also be done through an employee of this operator. The latter can then conclude either a standard employment contract with an employee who will be itinerant (e.g. in charge of a region) or a specifically employment contract dedicated to canvassing customers (called "VRP"). In both cases, the employee will be protected by the French labor law which provisions are very largely of public order, he will receive a salary on which the employer will have to pay social charges. The employer can terminate the contract only in accordance with a specific procedure and conditions and will have to pay severance.

The distinction between an agency agreement and an employment contract is fundamental to prevent the agent from claiming (usually at the end of the contract) the more protective status of an employee. As a consequence, the principal must, among others, avoid putting its agent in a position of subordination, that is to say, by controlling too strictly his activity and avoid exercising a disciplinary sanction over him.

• The service contract

In some cases, the content of the promotional mission is covered by a service contract. Thus, for example, when a pharmaceutical laboratory uses an outsourced sales force (managed by another company) to promote its pharmaceutical specialties to doctors, the mission of highlighting the products to third parties who are not potential buyers but prescribers, is not a commercial agency contract but a contract for the provision of promotional services. It is the same if the only missions envisaged by the commercial operator are for example a market study, an assistance to answering to calls for tenders, the follow-up of orders or shipments, the management of a buffer stock or of customer claims or of maintenance operations. The content of of a buffer stock or of customer claims or of maintenance operations. The content of the service must be very clearly identified and the price, generally a fixed price, must be precisely stipulated. In general, these contracts are governed by the provisions of the Civil Code regarding contractors. Unless stipulated in the contract, there is no compensation to pay at the end of the service.

The border between the contract of service and the assignment given to an agent is often rather tenuous, insofar an agent may be entrusted with all or part of these services in addition to his central mission of canvassing and negotiating and concluding contracts in the name and on behalf of his principal. In some cases, it may be strongly advised to divide the two contracts to conclude a pure commercial agent contract where the agent is remunerated solely for his canvassing activity and a service contract for where he is paid for ancillary services (this may in particular have a fundamental impact on the determination of the basis of compensation due to the commercial agent at the end of his contract).

(b) Main characteristics of a commercial agent

The commercial agent is defined in French law as "an agent who, as an independent profession, without being bound by an employment contract, is permanently responsible for negotiating, and possibly concluding, contracts of sale, or services on behalf of and for the account of producers, industrials, traders or other commercial agents "(art. L 134.1). In case of dispute of the status of the agent, the judge will therefore check if all the conditions laid down in this article are met.

• First, the commercial agent is independent. He masters his organization and the technical and human means that he implements. He organizes as he wishes his working time and chooses as he wishes his clients, who are his principals (subject to respect its non-competition commitments). As an independent, the commercial agent can also employ sub-agents, who are paid by him/her and also have the status of commercial agent.
• Second, the commercial agent is also an agent entrusted with a mandate, but a rather special agent. Like any agent, he acts in the name and on behalf of his principal. But as a statutory commercial agent, he has to actively seek out clients and negotiate with them and, possibly, conclude with them. However, during one decade, French case-law used to exclude from the status of commercial agents, agent who merely present the tariffs and products of their principal but who do not have the ability to negotiate prices and the main terms of sale contracts and / or freely conclude. Thus, in the presence of a clause excluding any possibility for the agent to negotiate and conclude contracts, the qualification of commercial agent could not be recognized (and in general the contract was disqualified into contract of mandate of common interest).

But, on June 4, 2020 the ECJ, to which the Paris Commercial Court had brought a request for a preliminary ruling on the compatibility of this French definition of commercial agent with the definition laid down by the 1986 Directive, set aside this definition of the "negotiation". The court added that the concept of negotiation cannot be understood in the restrictive lens adopted by French judges. The definition of the concept of "negotiation" must not only take into account the economic role expected from such intermediary (negotiation being very broad: i.e. dealing) but also preserve the objectives of the directive, mainly to ensure the protection of this type of intermediary. The ECJ then considered that a person does not necessarily need to have the power to modify the prices of the goods he promotes in order to be qualified as a commercial agent (see our post on Legalmondo blog).

Consequently, the Court of Cassation aligned itself (Cass. Com., 2 Dec. 2020, 18-20.231) with the European case law by considering that "a commercial agent must henceforth be qualified as a commercial agent if he (...) is responsible, on a permanent basis, for negotiating and, possibly, concluding contracts (...) in the name and on behalf of (...) although he does not have the power to modify the prices of these products or services”.

Article L 134-15 of the Commercial Code provides for a single case in which the protective status of the commercial agency may be waived even in the presence of a commercial agent. Thus, when the activity of commercial agent is exercised between the parties primarily for a project other than the commercial agency (e.g. a distribution agreement), these parties may expressly decide to disregard the protective provisions of the Commercial Code, provided that the commercial agent activity is not in fact exercised as a main activity.

Finally, it should be added that certain activities are excluded from the status of commercial agents, such as insurance agents, real estate agent or travel agents. But real estate salesforce working for a real estate agent on an independent basis can benefit from the status of commercial agent.

The contract

The commercial agent contract or the contract of common interest is a consensual contract. It can be formed in writing or orally. The contract can be formalized by a simple exchange of letters. In the absence of writing, proof of an agreement by any means is admissible, in particular by commission invoices or by third-party. Statements, regarding the commercial agent contract, contrary to what is often claimed, Article L 134-2 of the Commercial Code does not impose a written but merely provides that each party may require the other to have a written formalizing their relationship. The absence of writing does not prevent the application of the status of commercial agent and the protection provided for in Articles L 134-1 et seq. of the Commerce Code.

The commercial agent contract or the common interest mandate contract does not need to be registered.

The agent

The commercial agent is obliged to register with the special register of commercial agents ("RSAC") held at the registry of the commercial court. This obligation is binding on commercial agents domiciled in France, a natural person or a legal person, of French or foreign nationality. This obligation is not binding on commercial agents established outside France who have a temporary or occasional assignment in France.

The registration requirement is irrelevant to the validity of the commercial agent's contract. In other words, a commercial agent not registered with the RSAC can still claim the benefit of the protective status of commercial agents. On the other hand, nothing forbids the principal to stipulate that the registration is a condition precedent to the effectiveness of principal to stipulate that the registration is a condition precedent to the effectiveness of the commercial agent contract. The lack of registration is not sanctioned civilly but can be merely subject to a criminal fine. The commercial agent has the obligation to mention his registration number to the RSAC on all his commercial documents (subject to fine).

The agent of common interest has no duty to register to the RSAC.

Exclusivity can be granted by the principal as regards a geographical area and / or a type of clientele. As a consequence, the principal (i) cannot empower another agent for the same area and / or category of clients and (ii) will have to pay commissions to the agent for all sales concluded by the principal with clients belonging to the exclusive area / category even though the transaction was carried out without the intervention of the agent.

Unless otherwise agreed in the contract, online sales concluded by the principal, with a client belonging to the sector of the agent, gives right to commission, subject to paragraph here below. However, principal and agent are allowed to contractually exclude the right to commissions for online sales.

The basic rules are that the commercial agent is entitled to a commission (i) provided that the commercial transaction has been concluded thanks to his intervention, and (il) without to prove his intervention in the transaction when an exclusivity is granted to the agent. But Principal has also to deal with another (tricky) rule as article L 134-6 states a special rule applying even if no territorial exclusivity has been granted: when the commercial agent is in charge of a particular geographical area or group of persons (which is almost always the case), he is also entitled to a commission for any transaction concluded with a client belonging to that group or geographical area, without having to provide proof of his intervention. But this rule can be ruled out by the contract because it is not public policy.

(a) Non-competition covenant during the agency agreement

Even though the contract does not expressly stipulate it, the commercial agent has the legal obligation to obtain the prior consent of the principal to represent a competitor. That being said, it is highly preferable to define what the competitors are or what the competing products are (principle of functional substitutability). The principle of loyalty inherent in the agent also prohibits him from engaging in a competing personal activity even though this is not expressly prohibited in the contract.

(b) Non-competition covenant after the agency agreement

The commercial agent contract may stipulate a post-contractual non-competition clause but this one, to be valid, must be limited (i) to the very same geographical area (or the group of persons) entrusted with the agent (ii) as well as the type of goods and services provided for in the contract and (iii) to two years maximum. It is therefore not possible to stipulate a post-contractual non-competition clause with a wider scope than the commercial agent contract scope. Otherwise, it will be deemed void. But even within these maximum limits, French courts apply in addition the principle of proportionality to check whether this clause does not have the effect of preventing an ex-agent from exercising any professional activity. No financial compensation is required by law.

A commercial agency contract may be subject to a foreign law, if the contract is considered international. This situation will be characterized either when one of the two parties is established abroad or when the contract is executed abroad, even if both parties are established in France.

A contract may be subject to a foreign law either because of the choice made by the parties or, failing such choice, because of the determination made by the judge. This immediately raises the importance of the jurisdiction clause and the close link between international jurisdiction and applicable national law. Knowing that the rules of conflict of laws are those applied by the competent court, on the assumption that it is the French judge, the latter will apply the principles deriving from a European text of general application (the Rome I Regulation on the law applicable to contracts (17 June 2008, No. 593/2008) and also the provisions of The Hague Convention on the law applicable to intermediary contracts (14 March 1978).

(a) The choice of a foreign law by the parties

Whether under The Hague Convention (art. 5) or the Rome I Regulation (art. 3), French judges must respect the choice of law made by the parties, whether express or implied.

(b) The determination of the applicable law by the judge, in the absence of choice by the parties

The conflict of law rules imposed by the The Hague Convention and the Rome I Regulation are quite similar:

• According to the The Hague Convention (art. 6): in the absence of choice of the parties, the law determined by the judge will be the law of the State in which the agent is established when the contract is concluded, but it will be the law in the country in which the mission is to be performed if the principal at his domicile in that country.
• According to the Rome I Regulation: in the absence of choice of the parties, the law determined by the judge will be the law of the State in which the agent has his domicile or his habitual residence, whether under art. 4 § 2 (general rule) or art. 4, §1.b (special rule if the contract of agent is treated as a service contract for the purpose of the Rome | Regulation).

(c) Possible Interference of French Overriding mandatory rules

Even if the French judge is obliged to apply foreign law determined under the rules of conflict of laws, he must also apply the French overriding mandatory rules (OMR). In general, OMRs consist of the hardcore of internal public policy rules. In other words, not all internal public policy rules are OMRs at the international level. This question arises seriously for commercial agent contracts (and not for common interest mandate contracts), where French courts do not have the same position on this point as the ECJ.

The French Court of Cassation has been ruling, since twenty years, that the French regulation on commercial agents (art. L 134-1 and seg) is not an OMR. This solution applies to foreign principal established outside the EU and to principal established in the EU as well.

This position, rather to the benefit of the principal, appears out of step with the rules laid down by the ECJ: 

• in the case of a relationship between an agent established in the EU and a principal established outside the EU, the ECJ held that the commercial agent who had seized a EU member court can claim for the protection of the 1986 Directive, even though the contract is subject to a non-EU State law (ECJ, 9/11/2000, case C 381/98, Ingmar);
• as regards a relationship between an EU-based agent and a principal established in another EU member State, the ECJ has held that the law of a member State which implements the 1986 Directive, chosen by the parties, may be set aside by OMR of the country of the judge seized. But it is necessary that this judge finds that the legislator of his state considered “crucial” to grant to commercial agent a protection going beyond those sought by said Directive, taking into account the nature and purpose of such mandatory provisions (ECJ, 17/11/13, case C 184/12, Unamar).

It seems clear that for French courts, French law which transposed the 1986 Directive does not require special protection going beyond those provided by the Directive and cannot therefore disregard another European law transposing the same Directive. However, the foreign principal shall better, to avoid any risk of application of the French OMR, not only submit the agreement to a foreign law but also choose a foreign judge with a jurisdiction clause or stipulate an arbitration clause.

(a) Jurisdiction clause

An international agency contract may stipulate a jurisdiction clause in favor of a foreign court and, whatever the choice made by the parties (may be that of a third State to the countries of both parties). In international contract, the jurisdiction clause is valid even with a natural person who does not have the status of a trader. 

At the formal level, the jurisdiction clause must have been concluded in the form provided for by the Brussels I recast Regulation. International commercial agency contracts stipulating a jurisdiction clause must therefore expressly stipulate such a clause. It is also possible to stipulate a clause conferring asymmetrical jurisdiction whereby a court is determined to be exclusive to both parties but where one party reserves the right to bring the case to another court (this clause is valid provided that the option is mentioned in favor of a specific court). Although, in accordance with the Brussels I recast Regulation, clauses attributing jurisdiction are exclusive by nature, it is better to expressly state that jurisdiction is granted on an exclusive basis. It is advisable to include in the scope of the clause disputes based on tort liability and in the area of competition law and also hypotheses of plurality of defendants, call for guarantee and injunction and interim relief.

French judges respect the jurisdiction clause stipulated in favor of foreign courts, even if French OMRs are potentially involved.

It should be made clear that the jurisdictional rules of the Brussels I recast Regulation also apply, for this specific issue, to contracts concluded with contractors established outside the European Union.

If the parties do not stipulate jurisdiction clause to the benefit of a specific court, the jurisdiction of the judge to which the case is referred will be assessed in the light of the rules of jurisdiction of the country of this judge. As far as the jurisdiction of French judge is concerned, the rules determining the international jurisdiction differ according to the place of establishment of the parties: providing that the agent is based in France, for a EU based principal, this determination will be according to the EU Regulation Brussels I recast and for a non EU-based principal, it will be according to bilateral convention signed by France and failing that, according to the French standard rules of international jurisdiction. But basically rules of jurisdiction are more or less the same: (i) the place of domicile / principal office of the defendant and alternatively (il) the place of performance of the agency contract.

(b) Arbitration clause

An international agent contract may also stipulate an arbitration clause, which will be valid even it the agent is not a legal person but a natural person, and even if he is not a trader.

French judges recognize the principle of validity of arbitration clauses and decline their jurisdiction (unless the arbitration clause is blatantly null or inapplicable), but may still grant interim or protective measures, including a partial payment on a claim invoked by one of the parties ("référé provision"), as long as the arbitration has not started. In practice, agency contracts hardly ever stipulate arbitration clauses, whether ad hoc or referring to an arbitration center, such as the ICC.

A judicial decision made in another EU member state will be recognized and enforced in France, without any other formality since the entry into force of the Brussels I recast EU Regulation. For further information on enforcement and possible recourse under Brussels I recast Regulation, see the Chapter about EU law. It is important to recall in this respect that at the stage of enforcement in Europe, the Brussels | Recast Regulation applies to any judgment delivered by another judge of the EU, whatever is the basis of his jurisdiction (EU or national rules).

A judicial decision rendered by the court of a State which does not belong to the European Union will be recognized and enforced in France according to the conditions and the procedure foreseen by the bilateral convention possibly existing with this third country, and failing that, according to the rules laid down by French case-law on the subject: absence of a violation of an exclusive jurisdiction rule recognized by French courts, absence of violation of international public policy on the merits and of procedure and lack of fraud.

Arbitral awards made abroad are widely recognized and declared enforceables in France. Recognition or exequatur of an award may be refused only on the following grounds: (i) the arbitral tribunal wrongly declared itself competent, (ii) the arbitral tribunal has been irregularly constituted, (ili) the arbitra! tribunal ruled without complying with the mission entrusted to it, (iv) the principle of contradiction has not been respected or (v) the recognition or enforcement of the sentence is contrary to international public policy.

Assets precautionary seizures can be made however before the grant of the exequatur.

A commercial agent contract may be concluded for an indefinite period of time or for a fixed term. If the parties pursue a fixed-term contract that does not have a tacit renewal clause, this contract will continue for an indefinite period.

A commercial agency contract of indefinite duration may be terminated at any time, without any particular reason or cause. In all cases, a minimum notice period must be respected: one month for a termination in the first year, two months in the second year and three months in the third year and the following years. The same minimum notice should be respected if one of the parties to a fixed-term contract notifies his opposition to the automatic renewal.

Failure to comply with a notice exposes the party who terminates to pay damages on the basis of the length of the notice period that has not been granted. It should be noted that Article 442-1. Il (ex 442-6.1 5 °) of the Commercial Code on the so-called sudden termination (see our post on Legalmondo blog on this matter) does not apply to the commercial agency agreement (Cass. Com April 3, 2012, n°11-13.527) but applies to the contract of mandate of common interest insofar as there is no special notice rule applicable to this type of agreement.

The early termination of a fixed term contract that is not in accordance with the terms of the contract or that is not justified by fault of the other party, will allow the victim to obtain damages calculated on the basis of the time remaining until the end of the contract. In fact, the Court of cassation has ruled that "the termination of a commercial agent's contract, even for a fixed term, gives entitlement to compensation for loss resulting from the loss for the future of income derived from the exploitation of the common clientele, whereas the anticipated nature of this termination gives entitlement to compensation for loss resulting from the loss of commissions up to the date provided for in the agreement" (Cass.com., April 23, 2003, n°01-15.639).

Courts have judged that early termination of agency agreement:

• by the principal when the agent (i) represents competing products without the authorization of his principal concerned or (il) neglects to prospects the clientele;
• by the agent when the principal (i) does not pay on time the commission due or (il) does modify unilaterally the rate or basis of commission.

May the failure to reach a sales target be considered such a breach?

Failure to achieve contractual results or quotas is considered as a breach authorizing the principal to terminate by anticipation a fixed term agreement without damages for wrongful termination. However French case law judges that such non achievement of the minimum target is not qualified as a "serious fault"; therefore the principal who terminates a contract for failure to reach a minimum target will have to pay the termination indemnity.

The termination compensation due to the agent is treated differently depending on whether it is a commercial agent or an agent of common interest.    

(a)    The commercial agency agreement

Principle of termination indemnity

If the contract is subject to French law, compensation will be ruled by Article L 134-12 of the Commercial Code (and art. 17.3 of the 1986 Directive). No provision to the contrary may preclude the principle of such compensation or limit in advance its amount.

The indemnity is due upon the end of the contract (case law does not distinguish between the end of an indefinite duration contract and the term of a fixed term contract, even if this seems contrary to the text of the 1986 Directive). The compensation is not due in the following limited cases:

• the commercial agent has terminated his contract, unless this purpose is justified by a prior fault of the principal (eg. non-payment of commissions) or is due to age, infirmity, illness or death of the agent;
• the end of the contract is caused by the serious fault of the commercial agent ;
• the commercial agent has assigned his contract-with the consent of the principal-to a third party.

It should be noted that the exception of infirmity, age, sickness or death concerns only the commercial agent, natural person who has contracted with the principal. This possibility disappears when the commercial agent is a company that contracts with the principal.

If the commercial agent refuses to renew his contract when the principal proposes it to him, the end-of-contract indemnity will not be due. In fact, the Court of cassation refuses to grant termination compensation to an agent who refuses to renew his contract when the principal offers it to him (Cass.com., June 29, 2010, n°09-68.160). 

Regarding sub-agents’ termination compensation, the ECJ ruled that the compensation normally due by the agent to his sub-agents could be disregarded, in the name of fairness, in particular in case the sub-agent continues his activity with the principal. This principle of fairness and a more rigorous reading of the 1986 Directive (art. 17.3) should also lead to the conclusion that an agent whose sub-agent directly continues the relationship with its (former) principal cannot include the part that should accrue to its own sub-agent in the basis of its termination compensation requested from the principal.

The commercial agent's right to compensation becomes void if he does not claim it by any means (usually by registered letter with acknowledgment of receipt) within one year of the end of his contract. This period of foreclosure is independent, under French law, of the stature of limitation period which is five years from the end of the contract, and which is interrupted by a judicial proceeding.

Serious breach excludes the termination indemnity

Serious misconduct is strictly interpreted by case-law as a fault of such gravity which prevents the maintenance of the contractual relationship.

The French Supreme Court considers that a serious misconduct can be:

• failure of the agent to inform the principal of his change of shareholder, or of his change of manager;
• violation of non-compete undertaking;
  
• breach of duty of loyalty by the agent (Cass.com., June 29, 2022, n°20-13.228);
  
• failure to perform the contract in a professional manner by neglecting to prospect for customers (Cass.com., July 10, 2007, n°06-13.975) ;
  
• being paid a double commission to the detriment of the principal (Cass.com. September 20, 2016, n°15-12.994).
  

Thus, all violations of a contract are not automatically considered to be serious misconducts. For example, non-compliance with a turnover objective generated by the agent is not in itself a serious fault, but it is the case of a violation of a non-competition commitment, abandon of the mission or disparagement the principal. Even if courts consider not to be bound by a contractual definition of serious misconduct, it could be useful to specify what breach could authorize the principal to terminate the contract for a so-called serious fault. The definition of serious misconduct also leads the court to consider that if the principal has granted (for the sake of conciliation, compliance to contract or weakness) a prior notice of termination, the fault giving rise to this termination may not deemed to be serious misconduct. In other words, terminate for serious misconduct implies to terminate without notice.

Principal must really be very careful in the management of the termination of the agency agreement as regards the timing of termination and its notification.

First, the fault of the commercial agent must be invoked by the principal in the termination letter sent to the agent. Recent case law (November 16, 2022, n°21-17.423) has specified that a gross negligence of the agent not mentioned by the principal in his letter of termination cannot be invoked later to deny the right to compensation. So, even the discovery after the notification of termination, of misconduct committed by the agent cannot deprive the latter of his right to compensation, as it is the termination letter somehow locks in the grounds invoked by the principal and thus the conditions for awarding or denying compensation.

Second, a court of appeal also decided that if the agent notifies, first, the end of the contract, proving that this termination is justified by a previous fault of the principal, his right to compensation at the end of the contract will be acquired, even though the principal succeeds afterwards in proving that the agent had committed a serious fault (but principal will be entitled for damages). This caselaw to give a real tactical premium to the one who takes, first, the formal initiative to notify the end of the agency agreement.

Amount of termination indemnity

While the 1986 EC Directive and Article L. 134-12 of the French Commercial Code clearly establish a principle of compensation for the damage suffered by the commercial agent, french case-law very broadly sets the quantum of the compensation at a quasi-lump sum of two years of gross remuneration paid to the agent calculated on the average of the last 36 months preceding the actual end of the contract without requiring the agent to prove the reality of its damage, or the causal link between the end of the agreement and his damage. If the contract lasted less than two years, the compensation will be prorata temporis. The basis of compensation is in fact all the sums paid to the agent, including the remuneration for ancillary services (and even reimbursement of expenses). Case-law also does not traditionally distinguish between commissions paid for transactions with pre-existing clients and those that did not exist; but it could be advisable to attach to the contract the list of pre-existing customers and their turnover to characterize a possible failure of the agent. Indeed it seems that some courts do not want to stick to this 2-year lump sum and want to assess the real loss suffered by the agent. For instance, the Poitiers Court of Appeal ruled that “the termination indemnity is intended to compensate the sales agent for the loss of future income from the exploitation of the clientele. As the quantum of the indemnity is not regulated, the amount should be determined on the basis of the specific circumstances of the case, even if there is a recognized practice of awarding the equivalent of two years' commission, which is not binding on the court” (Poitiers Court of Appeal, Dec. 12 2023, n°23/00726). Recently, the Versailles Court of Appeal ruled that the compensation based on two years' commission should not be paid to the commercial agent when the principal himself has provided the base of clientele (Versailles, January 11, 2024).

If a fault or breach of the agent is not considered to be a serious misconduct, it may however constitute a fault incurring the responsibility of the agent and authorizing the principal to claim for damages which can then be offset with the end of contract compensation. The Court of Cassation recently reiterated this point : when the principal proves a serious fault committed by the agent, this serious fault not only excludes the right to termination compensation, but also authorizes the principal to claim for damages against the agent to compensate him for the prejudice it has suffered; at the very least, if the fault is not serious, the damages awarded will be offset against the agent's compensation (October 19, 2022, ch. com. N°21-20. 680, aff. VG Sport).

Although the principal cannot validly limit the amount of compensation in advance, it may use another way : the contract may stipulate that the provision by the principal of his own clients data base for the benefit of the commercial agent, will give rise to a remuneration of the principal, which is not payable by the agent at the time of the conclusion of the agreement or at the time of transfer of clients data base but which is postponed at the end of the agreement. In this case, this sum will offset (totally or partially) the amount of the end of contract compensation claimed by the agent. Case law has validated this practice on several occasions. For example, in 2012 the Court of cassation ruled that this type of clause is valid if its purpose is not to limit the amount of the termination indemnity (Cass.com., Feb 21, 2012, n°11-13.395). More recently, court of appeal ruled that this type of clause is lawful under the common law rules and does not preclude the public policy status of the commercial agency contract (Pau Court of Appeal, Nov 23. 2021, n°19/03937).

(b)    The agent of common interest

The agent of common interest is also entitled to compensation but his rights are more limited or even precarious. Above all, this right to compensation is not public policy and can therefore be excluded or modified by the contract. The end-of-contract compensation will not be due to this agent if the contract is terminated for just cause. The concept of serious fault is not required here. The amount of compensation is generally calculated in the same way as for the commercial agent.

A commercial agent carrying out operations in France for a foreign company will not be considered by French tax authorities as the permanent establishment of this company.

According to article 5 §. 6 of the OECD Model Convention "An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business."

The agent's contract must of course anticipate the nature and content of the agent's mission, the rights and obligations of both parties as well as certain obligations allowing a fair balance between the parties, such as, for example, turnover commitments., reporting requirements and collection and transfer of personal data. In principle, the parties are free to organize their relation, subject however to the provisions that govern the status of commercial agent, in the Commercial Code or more broadly the contract, in the Civil Code.

The most sensitive provisions to anticipate under French law are below.

• The commercial agent has an obligation of accountability which, in international matters, must lead him to scrupulously inform his foreign principal. It is therefore advisable to clearly outline the headings of an information report and the periodicity of it.

• The Civil Code has introduced since 2016 (art. 1195) the possibility for the parties to a contract to renegotiate it, if for a party the performance of its obligations became excessively expensive and when it had not accepted to assume the risks of such a change in circumstances. In the absence of agreement between the parties, the parties can submit to the judge a request for rebalancing the contract or for termination. Since this article is not a matter of public order, the parties may exclude it or limit its scope.
• French law requires the principal to pay a commission no later than the last day of the month following the quarter in which the commission was acquired. According to the Commercial Code, the commission is acquired as soon as the principal has delivered or as soon as the customer has executed his part of the operation (that is to pay). Even if these provisions are of public order, the contract can specify that the right to commission is acquired only at the time of the payment of the price and prorata.
• Article L 134-7 of the Commercial Code provides that the commercial agent will be entitled to commissions after the end of the contract in the two following cases:
• where the third party's order has been received by the principal before the end of the agent's contract, regardless of the date on Which the sale is made and the price paid;
• when the transaction is concluded between the principal and his client within a "reasonable" time after the end of the agent's contract and provided that the transaction is mainly due to his activity during the contract (which can be presumed when he was exclusive).

However, article L 134-7 is not of public order, so it can be amended or excluded by the contract.