Commercial Agency Contracts in Austria

The Austrian Commercial Agents Act (HVertrG, Handelsvertretergesetz 1993) transposed the relevant provisions of the European Directive 86/653/EEC on the coordination of the laws of the Member States relating to self-employed commercial agents into Austrian law. In addition to the law on commercial agents, the general legal provisions in Austria under the General Civil Code (ABGB) are also relevant.

A commercial agent is a natural or legal person who is permanently appointed by an entrepreneur (principal) to act as an intermediary for the conclusion of business transactions (with the exception of real estate transactions).

The commercial agent does not act in his own name but on behalf of the principal, but he acts autonomously. This means that the agent must act and work on his own initiative in order to conclude transactions and look for business opportunities.

The commercial agent is constantly entrusted with carrying out this activity independently and professionally. Thus, in principle, not only trade in goods is covered, but also the provision of services, so that this wide circle of addressees must always be taken into account in the direct application of the Commercial Agents Act.

There is no relationship of superiority or subordination between the commercial agent and the entrepreneur.

Distinction from other forms of distribution

Commercial Brokers

A broker mediates transactions with a third party for a client on the basis of a private law agreement (brokerage contract) without being constantly entrusted with them. A commercial broker acts as a broker for commercial transactions on a professional basis.

The essential distinguishing feature here is that the commercial broker is not constantly entrusted with the mediation. In the absence of any other agreement, he is not obliged to endeavour to act as a broker. He only mediates if possible. Therefore, even if no specific contract period has been agreed, the brokerage contract can be terminated by either party at any time without notice.

Authorised dealer

The law does not define the concept of an authorised dealer. According to case law, an authorised dealer is a person who, on the basis of a framework agreement (distribution agreement), is permanently entrusted as an entrepreneur to conclude legal transactions concerning the contractual products for another entrepreneur in his own name and for his own account.

The authorised dealer differs from a commercial agent insofar as the authorised dealer concludes transactions in his own name and for his own account.

Although the authorised dealer is also involved in the sales organisation of the entrepreneur, he usually bears the full entrepreneurial risk.

Franchisee

Franchising is a form of cooperation between companies at different economic levels. Franchisees and franchisors are legally independent entrepreneurs who operate in their own name and on their own account. However, the franchisee is obliged by the franchise agreement to use the procurement, sales and/or organisational concept developed by the franchisor.

The franchisee differs from a commercial agent in that the latter purchases goods or services "in his own name and for his own account" and distributes them "in his own name and for his own account". In practice, the differences are becoming increasingly blurred.

Commission agent

A commission agent undertakes on a commercial basis to buy or sell goods or securities in his own name for the account of another (commission agent). If the commission agent undertakes to carry out commission transactions for his principal on a permanent basis, he is a commission agent.

He also acts "for the account of another". Unlike the commercial agent, however, he concludes these transactions "in his own name", i.e. he acts like a dealer vis-à-vis the principal's business partner. In relation to the principal, however, he is obliged to surrender to the principal everything he has obtained from this agency.

Since the legally effective conclusion of a commercial agent contract is not bound to any form, a verbal contract is generally sufficient. The contract can also be established or amended by exchanging correspondence.

Whether or not it makes sense in practice to have a written contract cannot be conclusively answered. Entrepreneurs often have a pre-formulated contract which contains provisions that are disadvantageous for the commercial agent.

However, both parties are legally obliged to confirm in writing to the other party all provisions of the contract concluded verbally or conclusively.

In Austria it is possible to agree with a commercial agent on exclusivity for a defined territory, thus giving him territorial protection.

Art 7 (2) of the EC-Directive (86/653/EEC) relating to self-employed commercial agents explicitly allows Member States to include in their legislation one of the possibilities referred to as follows: "A commercial agent shall also be entitled to commission on transactions concluded during the period covered by the agency contract:

• either where he is entrusted with a specific geographical area or group of customers,
• or where he has an exclusive right to a specific geographical area or group of customers.

It is recommended to regulate contractually whether the principal himself may supply customers in this territory or not. Under certain circumstances, the distributor may even be entitled to remuneration for customers in the contract territory that he did not acquire himself.

Frequently used terms in contracts:

• “exclusive agent": no use of other commercial agents in the contract territory; no direct transactions by the principal.
• "sole agent": no use of other commercial agents, but direct business with the principal, which would, however, have to be commissioned.
• "non-exclusive agent”: The principal reserves the right to use other commercial agents in the contract territory and to carry out direct transactions himself without triggering a commission obligation.
• price specifications: “genuine” commercial agents may be given price specifications. In this case the commercial agent is to be regarded as a pure intermediary. Genuine commercial agents are those who neither own the contract goods nor do they provide the contractual services themselves nor do they have to bear the costs for certain additional services. If, for example, the commercial agent takes over transport, advertising and storage costs, costs for service facilities or investment costs, a commercial agent may become a “non-genuine” commercial agent. A “non-genuine” commercial agent bears the economic risk like an independent entrepreneur. If price specifications are made to a “non-genuine” commercial agent, the antitrust regulations must be observed.
  

The Commercial Agents Act stipulates that in case of doubt - unless otherwise agreed - the commercial agent is also entitled to commission for transactions concluded without his direct involvement during the contractual relationship between the clientele assigned to him or supplied by him and the principal.

If the commercial agent has been expressly appointed as sole agent for a certain territory or for a certain clientele, he shall, in case of doubt, also be entitled to commission for such transactions which have been concluded without his cooperation during the contractual relationship by or for the principal with the clientele belonging to the territory or to the clientele of the commercial agent.

This means that, under these conditions, the commercial agent is also entitled to a commission for online sales.

A distinction must be made here:

Prohibition of competition

a. during the existing agency relationship

b. after termination of the agency relationship

a. The contracting parties may agree on a non-competition clause. The law stipulates that the commercial agent must act with the diligence of a prudent businessman in the interest of the principal when carrying out his activities. In practice, it is recognised that commercial agents do not represent other undertakings whose products are even partially in competition with those of another undertaking.

Suggested wording in contracts:

"The agent shall refrain from any direct or indirect competitive activity. In particular, he is prohibited from doing business in the principal's line of business for his own account or for the account of a third party and from participating directly or indirectly in companies that are active in the line of business in question".

or

"The assumption of other representations, including representations from other sectors, is only possible with the written consent of the entrepreneur".

or

"The representative undertakes to inform the entrepreneur without delay of any circumstances that are incompatible with the interests of the entrepreneur to be safeguarded by the representative".

b. In contrast, the agreement of a post-contractual non-competition clause with a commercial agent is invalid. The manner of termination of the agency agreement is irrelevant. The commercial agent is thus even more protected than employees under labour law, which allows a non-competition clause after termination of the employment relationship within certain limits.

However, the former commercial agent's business practices may only take place within the limits of the Unfair Competition Act (UWG).

But even the agreement of a down payment to the former commercial agent does not change the ineffectiveness of a post-contractual non-competition clause according to the Commercial Agents Act.

The following agreement is thus inadmissible:

"The agent undertakes to refrain from any independent or dependent, full-time or part-time, paid or unpaid activity in Austria in the entrepreneur's line of business for a period of one year after termination of the agency relationship."

Which law is to be applied if no contractual agreement has been reached?

If a commercial agent has a contract, even if only an oral contract with a foreign entrepreneur, the contract is governed by the law of the state with which he has the closest ties. The closest connection is assumed to be where the characteristic service is provided (in this case the mediation of contracts). The starting point is therefore generally the location of the commercial agent's head office (registered office or [main] branch). It also does not harm if the commercial agent (also) performs his activity in another state. The time of the conclusion of the contract is decisive; a subsequent relocation of the registered office abroad does not change the choice of law.

If nothing has been contractually agreed with regard to the choice of law, Austrian law applies if the commercial agent has its registered office in Austria, and the place of jurisdiction is Austria or the locally competent court of its registered office/residence.

Choice of law for facts with foreign reference

If the facts of the case have a sufficient connection to a foreign legal system (e.g. the contractual partner's registered office abroad), any foreign law can be contractually agreed upon.

There is the following special case where, despite a foreign choice of law, mandatory Austrian provisions apply, namely in the case of:

Choice of law with facts without foreign reference

If there is no international connection because, with the exception of the choice of law itself and any agreement on the place of jurisdiction, the facts of the case at the time of the choice of law (conclusion of the contract) are located in only one country, this does not affect the mandatory provisions that are decisive in the case of an objective connecting factor (i.e. without a choice of law). This means that if an Austrian commercial agent contractually agrees with an Austrian entrepreneur that French law is to be applied and Munich is agreed upon as the place of jurisdiction, a purely domestic case nevertheless exists. As a result, French (commercial agent) law, which has been chosen as the applicable law, only applies to the extent that the mandatory provisions of the Austrian Commercial Contract Act do not determine otherwise (e.g. the claim for compensation cannot be excluded).

If a foreign entrepreneur does not want to accept the Austrian place of jurisdiction, the compromise "The place of jurisdiction is the plaintiff's registered office" can be agreed upon. Experience shows that the commercial agent will usually be the plaintiff.

As an alternative to a state court, the jurisdiction of an arbitration court can be agreed upon. Within the framework of arbitration, the parties can decide who will decide on their disputes. In this way it can be ensured that real experts in the respective factual and legal issues arising are active.

Due to the flexibility of the procedure and the limited contestability of arbitral awards, a final decision is usually reached much faster than in traditional court proceedings. Arbitral awards are enforceable almost everywhere due to the respective agreements.

It should be noted that an arbitral award can only be challenged by a higher arbitral tribunal if this has been expressly agreed. A challenge in court is only possible in a few cases.

The recognition and declaration of enforceability of foreign arbitral awards shall be governed by the provisions of the Austrian Rules of Enforcement, unless international law or legal instruments of the European Union provide otherwise. The formal requirement for the arbitration agreement is also deemed to be fulfilled if the arbitration agreement complies with the formal requirements of sec 583 ZPO as well as with the formal requirements of the law applicable to the arbitration agreement.

The presentation of the original or a certified copy of the arbitration agreement pursuant to Art IV (1) (b) of the New York UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards is only required upon request by the court.

A commercial agency contract may be concluded for an indefinite period of time or for a fixed term.

A contract concluded for a fixed period of time ends with the expiry of the period for which it was concluded. If the contractual relationship is continued by both parties after the expiry of the agreed period, it shall be deemed to be extended for an indefinite period.

If the contract is concluded for an indefinite period, it may be terminated by either party in the first year of the contract subject to one month's notice; however, the notice period shall be at least two months after the second year of the contract has begun, at least three months after the third year of the contract has begun, at least four months after the fourth year of the contract has begun, at least five months after the fifth year of the contract has begun and at least six months after the sixth year of the contract has begun and in subsequent years. For the purpose of calculating the period of notice, in the case of contracts previously entered into for a fixed period of time and extended for an indefinite period, the duration of the contract entered into for a fixed period of time shall be included. Agreements which provide for shorter periods than the presumed periods are invalid.

Unless the parties have agreed otherwise, termination shall only be permissible at the end of a calendar month.

If the parties agree on longer terms than those provided for, the term to be observed by the principal may not be shorter than the term to be observed by the commercial agent; in the event of non-compliance, the principal shall also be subject to the longer term to be observed by the commercial agent.

The agency contract may be terminated at any time, without notice, by any part of it for good cause.

An important reason entitling the principal to terminate the agency contract prematurely shall be deemed to be, in particular

• if the commercial agent becomes incapable of performing his activity;
• if the commercial agent is guilty of an act which renders him unworthy of the principal's confidence, in particular if he accepts a reward, if he transmits to the principal orders which have not been given or if he otherwise misleads him in essential commercial matters;
• if the commercial agent fails or refuses to act for the principal for a considerable period of time, depending on the circumstances, or if he breaches other essential contractual provisions;
• where the commercial agent is guilty of any act of violence or serious lack of respect for the principal;
• if bankruptcy proceedings are instituted against the commercial agent.

Good cause entitling the commercial agent to terminate the agency contract prematurely shall be considered in particular

• if he becomes incapable of performing his activities, or
• if the entrepreneur
  (a) unreasonably reduces or withholds commission due to the commercial agent or breaches other material contractual provisions; or
  (b) the commercial agent has been guilty of serious misconduct or serious misrepresentation; or
  (c) ceases to carry on the business in which the commercial agent is principally engaged.

Early termination is possible if there are important reasons.

The prerequisite is always that the continuation of the contractual relationship is no longer reasonable for the person declaring the premature termination. This is because ordinary termination is always possible in compliance with notice periods and dates or waiting until the end of a fixed term. What is unreasonable always depends on the individual case. And there does not always have to be fault on the part of the other contracting party to be able to declare early termination, unless the law explicitly requires fault.

The Commercial Agents Act itself lists some important reasons by way of example, distinguishing between reasons for the principal and those for the commercial agent.

An important reason entitling the principal to terminate the contractual relationship prematurely is in particular:

• if the commercial agent becomes incapable of carrying out his activities;
• if the commercial agent is guilty of an act which renders him unworthy of the principal's confidence, in particular if he accepts a reward contrary to the provisions of § 7, if he transmits to the principal orders which have not been placed, or if he otherwise misleads him in essential business matters;
• if the commercial agent fails or refuses to act for the principal for a period of time which is considerable in the circumstances, or if he violates other essential provisions of the contract;
• if the commercial agent is guilty of assault or serious offences against the principal;
• if bankruptcy proceedings are instituted against the commercial agent's assets.

Good cause entitling the commercial agent to terminate the agency contract prematurely shall be deemed to exist in particular:

• if he becomes unable to carry out his activities; or
• if the principal
• unduly reduces or withholds the commission due to the commercial agent or breaches other material provisions of the contract; or
• is guilty of assault or serious defamation against the commercial agent.
  

Under certain conditions, the commercial agent may demand reasonable indemnity even after termination of the contract. This is the case when:

• the commercial agent has brought the principal new customers or substantially expanded existing business relations
• the principal has continued to enjoy substantial benefits after termination of the contract;
• the payment of remuneration taking into account all the circumstances, in particular the commission lost by the commercial agent, can be regarded as fair.

The right to indemnity shall also exist where the contractual relationship ends by the death of the commercial agent and the conditions set out in the above conditions are met.

The claim does not exist if

• the commercial agent has terminated or prematurely terminated the agency contract, unless circumstances attributable to the principal, even if they do not constitute a serious reason, have given reasonable cause for doing so or the commercial agent cannot reasonably be expected to continue his activities because of his age or because of illness or infirmity, or
• the principal has terminated or prematurely terminated the contractual relationship due to the commercial agent's culpable conduct constituting an important reason, or
• the commercial agent, pursuant to an agreement concluded with the principal on the occasion of the termination of the agency contract, transfers to a third party the rights and obligations which he has under the contract.

In the absence of an agreement more favourable to the commercial agent, the indemnity shall not exceed one year's remuneration calculated on the basis of the average of the last five years. If the contractual relationship has lasted less than five years, the average of the total duration of the contract shall apply.

The commercial agent shall lose the right to indemnity if he has not informed the principal within one year of the termination of the agency contract that he is exercising his rights.

A permanent establishment is a fixed place of business through which the business of an enterprise is wholly or partly carried on.

A permanent establishment of an enterprise may also be established by dependent agents (e.g. employees). However, the employment of dependent agents only leads to a permanent establishment if they have the authority to conclude contracts on behalf of the entrepreneur and usually exercise this authority (authority to conclude).

The power to conclude contracts must apply to contracts that constitute the actual business activity. A concluding power of attorney does not exist if the contracts only become valid after they have been approved by the entrepreneur.

In contrast to the dependent agent, however, the activity of an independent agent does not give rise to an agent's permanent establishment.

An agent is only independent if there is both legal and economic independence.
An agent permanent establishment exists if

• a person,
• is in a dependent relationship with the represented enterprise,
• has power of attorney over the financial statements, and
• habitually exercises the authority to conclude contracts.

The term "person" refers to natural persons, legal entities and associations of persons. Under certain circumstances, a subsidiary can also be a representative of the parent company.

A relationship of dependence exists if the person is subject to detailed business instructions and/or comprehensive control by the represented company.

This relationship is always present in the case of employees; however, it can also be present in the case of a commercial agent who is economically and legally dependent on the principal.

Commission

The principal and the commercial agent are free to set the commission in the agency agreement as high as they wish.

There are also commission claims for follow-up business, i.e. business that was not mediated directly by the commercial agent but came about as a result of his or her work. In other words, this also includes those transactions in which the principal concludes a further contract with the customer which was arranged by the commercial agent for the first conclusion of the contract (first transaction).

This follows from § 8 Para. 2 HVertrG ("each transaction concluded as a result of his activity"), although it should be noted that this provision is not mandatory. However, the limit is the immorality!

The claim to commission arises at the latest when the customer has fulfilled his part of the transaction, i.e. payment. Even if the principal executes an accepted transaction incorrectly or not at all, the commercial agent is entitled to the full commission if the incorrect execution is attributable to the principal. Any claims for damages or warranty claims made by the customer do not affect the commercial agent's full commission, so reductions or backsettings are not permitted. These provisions are mandatory.

If the customer pays only part of the amount due, the commercial agent receives a commission proportional to the amount paid. The entitlement does not apply "if and to the extent" the transaction is not executed and this is attributable to the customer (e.g. due to insolvency). In this case, however, the principal must take legal action and provide evidence of this.

Commission claims may also arise after the termination of the agency agreement, e.g. if the contract between principal and customer was concluded before the termination of the agency agreement.

Prohibition of the acceptance of rewards

In the absence of a different commercial practice existing for the line of business in question, the commercial agent may not, without the principal's consent, accept a reward from the third party with whom he concludes or arranges business for the principal.

The principal may require the commercial agent to surrender the unlawfully received reward and to compensate the principal for any loss exceeding that amount.

Reimbursement of expenses

The commercial agent may not claim compensation for general costs and expenses incurred in the course of business.

On the other hand, in the absence of any other agreement or different commercial practice, the principal must reimburse him for the special expenses which he has had to incur as a result of the principal's instructions.

Profit sharing

If it has been agreed that the commercial agent's remuneration shall consist wholly or partly of a share of the profits from all or certain transactions or that the profit in any other way shall be decisive for the amount of the remuneration, settlement shall be made after the end of the financial year on the basis of the annual accounts.

Limitation period

All claims arising from the contractual relationship between the entrepreneur and the commercial agent are subject to a limitation period of three years.

For claims included in the settlement, the limitation period begins at the end of the year in which the settlement was made, and for claims not included in the settlement, at the end of the year in which the contractual relationship was terminated. For entitlements for which settlement was not to be made until after the contractual relationship was terminated, the limitation period begins at the end of the year in which the settlement should have taken place.

If the claim has been filed with the Contractor, the limitation period shall be suspended until the Contractor's written reply is received.

Self-employment similar to that of employees

Reality shows that for some commercial agents it is advisable to check whether and to what extent they are actually self-employed. The trade licence only means that the holder intends to put his activity on a legal basis and the affiliation to the social insurance of the self-employed is a logical consequence of this. Despite the existence of all these formal requirements, it is possible that the environment and circumstances in which the commercial agent exercises his profession may give an indication that he is "employee-like".

Employee similarity is characterised by the fact that although there is no employment relationship, the agency relationship is in many respects very similar to employment. According to the prevailing case law, employee similarity is given above all in the case of a certain regularity of work performance, provided that the person in question is dependent on this remuneration to earn a living and does not perform his work in an independent business of his own, but in economic subordination for the purposes of another. In this context, the external control of the work is essential, which is to be assumed if the economic success of the activity accrues to the entrepreneur.

The economic dependence is mainly caused by the following characteristics:

• activity for only one entrepreneur
• this income is the sole or by far the predominant basis for economic existence
• obligation to follow instructions
• regular (personal) reporting obligation
• minimum turnover.

The qualification as an "employee-like commercial agent" means that individual legal provisions created for employees apply to your contractual relationship despite the formal status as a self-employed commercial agent.

First of all, the fact that you are to be qualified as an "employee-like commercial agent" also gives rise to the jurisdiction of the Labour and Social Court when it comes to commission and compensation claims against the represented company. The jurisdiction of the labour and social courts offers considerable procedural advantages. The procedure as a whole is characterized by a simplification in the interest of the employee who is weaker than the employer.

Furthermore, the similarity of employees has an effect on your liability for damages arising within the scope of the contractual relationship. For commercial agents who are similar to employees, the liability or recourse restrictions of the German Employee Liability Act (DHG) apply. The Dienstnehmerhaftpflichtgesetz (DHG) exempts the commercial agent from liability towards his entrepreneur for damages that are to be considered "excusable mistakes". For damages caused by the commercial agent due to a minor degree of negligence, the court may waive compensation moderately or even completely. In the case of gross negligence, a moderation of the compensation is possible. If the commercial agent has caused the damage intentionally, he is liable according to the general rules for compensation. The application of the DHG is of great importance to the commercial agent as a permanent business traveller in connection with traffic accidents. If the employee-like commercial agent causes a traffic accident as a result of an excusable mistake, the entrepreneur shall be fully liable for damages to the commercial agent. The commercial agent is initially obliged to pay full compensation to a third party injured by the traffic accident. However, the commercial agent may, depending on the degree of fault, take recourse against the employer if the reimbursement is in accordance with equity. In case of a different degree of fault, the extent of the obligation to pay compensation varies.

According to case law, other labour law standards are to be applied analogously to employment relationships similar to those of employees. In this context, the principle of equal treatment is of particular importance, as it is generally not applied in distribution law and the entrepreneur is free to negotiate different conditions with his commercial agents. This means that an employee-like commercial agent has the right not to be put in a worse position than the entrepreneur's other commercial agents under the same conditions, either arbitrarily or for irrelevant reasons. This will probably play a role in particular with regard to the level of the commission rate or voluntary benefits.