Practical Guide to International Commercial Agency Contracts in Brazil

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Brazil

How are agency agreements regulated in Brazil?

In Brazil, commercial agency agreements are regulated under Brazilian Federal Law No. 4,886/65 as amended (the “Brazilian Agency Law”). The agent is defined by the Brazilian Agency Law as the legal entity or individual, with no employment relation, which performs on a permanent basis and on behalf of one or more principals, the mediation for commercial businesses, obtaining purchase orders to be sent to the principals and can perform or not the acts related to the execution of the transactions.

An agent shall be enrolled with the Commercial Agency Regional Council (in Portuguese, Conselho Regional dos Representantes Comerciais – “CORE”) to perform such activities. However, this requirement is not always observed. The absence of the enrollment does not invalidate a commercial agency agreement.

The Brazilian Agency Law is in force for more than 50 years, has incorporated changes in 1992 and 2010, but the main structure remains the same. It represents a thorough regulation and does not leave too much room for the parties to freely negotiate. It is important to have in mind that the commercial agent is protected and, in many ways, the indemnification and rights of the agent reflect reminiscences of an employment relationship.

As an example, principals shall take into account that it is quite difficult to avoid a termination penalty of 1/12th of all commissions paid throughout the entire duration of the agency agreement, unless the termination is caused by the agent, due to one of the restricted causes for termination by the principal, as more detailed described below.

What are the differences from other intermediaries?

Brazilian Agency Law determines that the agency agreement shall contain at least the following list of items:

  • general conditions and general requirements for the agency;
  • general or specific geographical indication of the products subject to the agency agreement;
  • determined or indefinitely term;
  • area or areas in which the agent will perform his activities;
  • need of guarantees, in part or in full, or for a certain period, of exclusivity in an area or part of an area;
  • compensation and payment terms, conditioned to the actual performance of the business and the receipt (or not) of the payments of the intermediated sales;
  • cases where restriction of exclusivity is justified;
  • rights and obligations of the contracting parties;
  • exclusivity of the agent to principal;

The agent is not, by definition, an employee of the internal sales force of the principal; the agent is an independent contractor. However, in many cases, the agent can claim that he was an employee of the principal if the agent is capable to prove factual elements that he was treated as an employee of principal.

It is expected from the agent to hold farther responsibilities and obligations than a mandate or a business finder, especially for the obligations to report and work on the development of the market for the principal.

The agent is not a distributor, in view, the agent does not acquire the principal’s products to resell.

How to appoint an agent in Brazil

Brazilian Agency Law admits the formation of the agency agreement in writing or orally. Nevertheless, the proof of certain conditions such as the exclusivity of the agent in a territory must be evidenced and cannot be implied. As a result, the written form shall be considered to state that the parties have agreed upon an exclusivity of territory for the agent.

The Brazilian agents are required to be enrolled with the Regional Council of Commercial Agents (in Portuguese, Conselho Regional dos Representantes Comerciais – “CORE”) which is located nearest to the agent’s domicile. The existence of the enrollment with CORE should be a point of attention.

To enrol with the applicable CORE, the agent shall be duly enrolled, either as an entity or as individual with the Brazilian Federal Revenue Services and obtain the Corporate or the Individual Taxpayers’ Registry (for legal entities: Cadastro Nacional das Pessoas Jurídicas – CNPJ; for individuals, Cadastro da Pessoa Física – CPF).
The agent shall also obtain the City Taxpayers’ Registry at the prefecture of his domicile; such registry is required for entities or individuals rendering services. The municipalities are required to collect taxes for services.

Principals are not required to obtain any specific registry for entering into an agency agreement.

The Brazilian Agency Law has not stipulated minimum demands for the admission of an agent.

From past experiences, we know that not all the companies or individuals performing agency activities or having entered into an agency agreement have actually enrolled with CORE. Not all principals require the proof of enrollment of the agent with CORE. Case law has shown that a failure to enrol with CORE does not turn the agency agreement necessarily void, although it would be highly recommended to enrol.

The validity of a contract signed outside the Brazilian territory shall be demonstrated by having the signatures duly notarized and apostilled.

Is it possible to apply a foreign law?

This shall be read taking into consideration the point of view of a Brazilian party.

An international agreement would be an agreement generating effects in different jurisdictions, pursuant to Brazilian laws.

Brazilian Agency Law does not contain any limitation for the choice of law. Pursuant to the Law for the Introduction to the Brazilian Law Rules (LINDB – Law-Decree No. 4,657/1942, Art. 9), the law of the place of fulfilment of the obligation shall rule the contract. In this respect, if the agency agreement is executed outside Brazil, the laws of that foreign location may be deemed the law applicable to the contract.
In this regard, there is room for foreign law to be applied to the agency agreement. In practice, the complexities involved in the application of foreign law are so significant that it may not be in the best interest of the parties that a Brazilian judge rules a case based on foreign law.

Application of foreign law to a specific case by a Brazilian judge appears to be tremendously difficult. The court would likely demand a sworn translation to Portuguese of all applicable laws and jurisprudence to understand it and then apply it. The costs involved and the need to understand and apply foreign laws would be sufficient reasons to discourage the use of foreign laws to the agency agreement involving a Brazilian party.

In one decision, the State of São Paulo Court of Appeals had faced the matter – termination of an international agency agreement that provided for an application of Italian law – and, by a majority of votes, ruled that the Brazilian laws are to be applied for the termination of an agency agreement. One judge understood that the contract was to be ruled as originally agreed by the parties but was defeated by the majority formed by the other judges.

Is it possible to submit any disputes to a foreign jurisdiction or to foreign arbitrators?

It is possible for the parties on an agency agreement to agree on submitting disputes to foreign arbitrators. Brazilian Arbitration Law (Federal Law No. 9,307/1996, as amended, Art. 1) establishes that the parties in a transaction may choose arbitration for resolving private matters that do not involve public policy matters.

Having chosen arbitration as the preferred way for dispute resolution, again according to the Brazilian Arbitration Law, the parties may choose a foreign law, a foreign arbitrator and a foreign arbitration centre to resolve the disputes arising from the agency agreement, provided that such choice does not concern public policy matters (Brazilian Arbitration Law, Art. 2).

If arbitration is not chosen as the preferred way for dispute resolution, considering that the agency agreement is governed by the Brazilian Agency Law and Brazilian laws, then, the State courts of the agent’s domicile shall have jurisdiction to resolve disputes related to the agency agreement.

Brazilian Civil Procedural Code (Federal Law No. 13,105/2015, Art. 22) lays down rules that assign jurisdiction to the Brazilian judge for the definition of proceedings in which:

  • the defendant is a Brazilian resident;
  • the obligations shall be fulfilled in Brazil; and
  • the grounds are facts occurred or acts performed in Brazil.

If you enter into an agency agreement with a Brazilian agent, it is clear that there will be activities to be performed in Brazil. In such a case, a Brazilian judge may be deemed suitable to settle a possible dispute.

In case of a Brazilian principal, considering payment of commissions will be made by a Brazilian entity or the effects of the agency generate activities in Brazil (e.g., production of goods, exports, among others), it would not be surprising that there are obligations to be accomplished in Brazil and acts performed in Brazil and, consequently, a Brazilian judge might deem himself competent to rule such a case.

Agency agreement termination

As a general rule, the agent is entitled to receive an indemnification of 1/12th of all the commissions paid throughout the entire duration of the agency agreement plus 1/3 of the remuneration received during the previous 90 days prior to the termination, to enable immediate termination.

This 1/12th indemnification does not apply in the events of a termination by the principal for a just cause and for fixed-term contracts.

Termination by the principal for a just cause are the only cases where the 1/12th indemnification would not be applicable. The Brazilian Agency Law has limited the cases in which the principal may terminate the contract with cause:

  • in the event of acts by agent causing disrepute of the principal;

in the event of a breach of obligations related to the agency activities; and

  • in the event of a criminal conviction concerning honour or reputation.

These circumstances shall be supported by evidence. Producing sufficiently strong evidence of the facts to causing the grounds for termination may not be an easy task, considering some of the facts may be subject to construing and interpretation by the parties, witnesses and ultimately the judge.


Termination by the Agent: the Brazilian Agency Law also stipulates situations that agent could terminate the contract and still be entitled to receive the 1/12th indemnification:

  • a decrease in the activities conflicting with contractual provisions;
  • a breach of the exclusivity (territory and/or products), if provided by the agreement;
  • a price determination that makes the agency unfeasible;
  • failure in payment of the commissions; and
  • force majeure.

As a result, the indemnification is broad and, from past experiences, it is rare to see principals in a position to avoid the payment of the 1/12th indemnification.

Termination indemnity

As mentioned above, for contracts with a indefinite term, the agent is entitled to receive 1/12th of all of the commissions paid throughout the duration of the entire agency agreement plus a previous notice period or payment of the equivalent amount of 1/3 of the remuneration received during the previous 90 days prior to the termination.

For contracts with a determined term, the indemnification shall be the equivalent to the monthly average of the remuneration paid up to the termination date, multiplied by half of the remaining months of the contractual term.

Also relevant to consider is that if the parties extend the duration or sign a new contract within 6 months after the expiration of the previous, the relation between agent and principal shall be deemed as the same relationship and thus, the duration of the contract is considered indefinite. Consequently, the indemnification shall encompass the entire period (past and subsequent contract) and will, therefore, concern the 1/12th of the commissions paid throughout the entire duration of the contract.

Part of the doctrine considers the indemnity as a sort of compensation for giving up the opportunity to continue to pursue the market in which the agent had established himself. In this regard, the agent could also claim damages.

The statutes of limitation for the agent to file a claim against principal shall be five (5) years from the date of effective termination of the agency agreement.

Other peculiarities

One of the most relevant points that principals should be aware of when dealing with Brazilian agents is to avoid the risk of configuring an employment relationship.
The activities developed by the agent could eventually be deemed as performed by a regular employee of the principal and, in this case, the principal may be required to compensate the agent as an employee.

To that extent, the agent needs to file a labour claim and prove the existence of an employment relationship.

The Labour Court judge will consider the factual situation, prevailing upon the written agreements or other formal documents. The judge may rely on e-mails, witnesses and other evidence.

The elements of an employment relationship are:

  • Individual: in case the individual acts by himself to perform the services;
  • Personal services: the services are in fact performed by the individual specifically to the Principal;
  • Non-eventuality – exclusivity: the services are rendered on a regular basis;
  • Subordination: key factor - the individual has to follow strict instructions by the principal, such as reporting to an employee of the principal, predetermined visits; and
  • Rewarding - fixed remuneration: the individual is awarded regular amounts and expenses allowances.

In the event that the individual can prove the existence of the elements configuring an employment relationship, he could obtain an award to entitle him to be considered as a regular employee for the last 5 years with the relevant remuneration.

As a result, the individual would be awarded the payment of Christmas bonus (equivalent to 1 monthly remuneration per year), vacation allowance (1/3 of a monthly remuneration per year), unemployment guarantee fund (1 monthly remuneration per year) plus other benefits that he would be given as an employee of principal (based on the collective bargaining agreement between the employees’ and employers’ unions). The company would also be obliged to make the payment of the co-related social security contributions.
Needless to say that the result could turn into considerable contingency.