Practical Guide to International Commercial Agency Contracts in Germany

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Germany

How are agency agreements regulated in Germany?

In Germany, commercial agency contracts are governed by sections 84 – 92c of the German Commercial Code (Handelsgesetzbuch, HGB). These sections implement the Council Directive 86/653/EEC of December 18, 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents (‘EU Agency Directive’) into German law. They define the main entitlements and duties of an agent and of the company/person represented by the agent.

Additionally, as far as sections 84 – 92c of the HGB do not contain specific provisions, the German Civil Code (Bürgerliches Gesetzbuch, BGB) applies, in particular relating to the conclusion of the contract, the effectiveness of declarations, damage claims due to breaches of duties, calculation of time periods, etc.

It is important to know that the German Civil Code provides specific law for contracts in which standard terms and conditions are used. German jurisdiction interprets the notion ‘standard terms and conditions’ widely. It is sufficient that the term is designed for multiple uses or at least looks as if it is designed for multiple uses. Section 307 et seq. of the BGB specify the principle of good faith and protect the other party in general terms and conditions against unreasonable disadvantage. The German concept of the review of standard terms and conditions goes beyond what is established under the European Directive 93/13/EEC on unfair terms in consumer contracts. It applies to a certain extent also to B2B cases and is therefore quite strict. If a contractual clause is considered to be an unreasonable disadvantage for the other party, such a clause in a contract is void and is replaced by statutory law. The law on general terms and conditions is mandatory and cannot be waived by the parties. The European competition law including the Vertical Block Exemption (Commission Regulation (EU) of April 20, 2010) has to be taken into consideration if the agent alone bears, according to the agreement with his principal, the financial or commercial risks in relation to the contracts concluded and/or negotiated on behalf of the principal, or in relation to market-specific investments for the field of the offered products.

What are the differences from other intermediaries?

Section 84 subs. 1 of the HGB defines in line with article 1 para. 2 of the EU Agency Directive a commercial agent as a self-employed intermediary who has continuing authority to negotiate the sale or the purchase of goods on behalf of another company/person, hereinafter called the 'principal’. It can (but does not have to) be agreed that the agent has the authority to conclude contracts with customers on behalf of and in the name of the principal. ‘Self-employed’ means that the intermediary is basically free to arrange his own work and to organize his working times flexibly. The agent’s remuneration (‘commission’) is generally purely success-based. However, the parties may agree on other forms of remuneration. Even a fixed salary is allowed.

German Commercial Agency Law knows different kinds of agents: The agent as a District Agent (“Bezirksvertreter”) is very common. Each District Agent is assigned a specific geographic area or a specific group of customers for the acquisition of orders. The principal may still be allowed to undertake business activities within that area at the same time. In fact, the status of the District Agent only implies, that the agent receives commissions for all transactions made by the principal within his area, including also those not involving him. For a District Agent, too, specific, named or otherwise clearly identifiable customers, for example specified key accounts, can be excluded as regards commissions by corresponding contractual agreements. Often, District Agents are granted in the agreement an exclusivity. In such a case, the principal is not allowed to undertake business activities neither personally nor through a third party within the area of the Exclusive Agent.

If the Commercial Agency Contract does not provide for the agent to work as a District Agent, the agent is usually entitled to commissions only if he actively and causally arranges a business transaction.

The agent has to be distinguished from the following sales intermediaries:

Employed sales representative

The employed sales representative receives instructions concerning working hours, itinerary and customer visits. As an employee, he brings or closes business deals on behalf of his employer. In contrast to an agent, he himself cannot decide freely over his working hours and his activity. As remuneration, he usually earns a fixed wage which is often supplemented by a success-based commission. The Commercial Agency Law then applies to the part of the commission of his remuneration accordingly.

Commercial broker

The commercial broker professionally closes business deals on behalf of someone else, however, in contrast to the agent, without being permanently and contractually entrusted with it. He does not have a permanent contract with an employer and thus, he is not obliged to constant customer care and to arrange business deals. The HGB’s specific provisions of sections 93 et seq. apply to the commercial broker.

Commission agent

The commission agent differs from the agent by way of selling goods on his own behalf but not on his own account. The HGB’s specific regulations of sections 383 et seq. apply to the commission agent.

Distributor

The distributor typically buys goods on the basis of a contract with a manufacturer/supplier and then sells them on his own behalf and on his own account. If the distributor has similar rights and obligations as the agent and he is integrated into the sales organization of the manufacturer or supplier, commercial agency law can partly apply correspondingly, for example with regard to the justification of the distributor’s claims for compensation (see under no 9. below).

Franchisee

Between franchisor and franchisee, there exists a long-term agreement with extensive mutual rights and obligations. The franchisor usually provides the franchisee with a business concept of distributing goods or services under a consistent business name and often with further specifications relating to corporate identity, for which the franchisee has to pay a franchise fee. The franchisee, in contrast to the agent, however, acts on his own behalf and on his own account.

How to appoint an agent in Germany

No special form is required for the contract between agent and principal; it can thus be concluded verbally, by exchange of correspondence or by conclusive acts, too (for example by repeated transaction procuring). Each contractual party, however, can request that the content of the contract is included in a document signed by the other contractual party (section 85 of the HGB).
The agent has to register his business with the trade office in the district where it is based. Registration in the Commercial Register is only mandatory for the agent if his business activities reach a specific size (relevant factors are amongst others arranged turnover, commission amount, number of the representations or arranged business transactions) or if the activity as an agent is exercised in the form of a partnership or a corporation. Furthermore, the agent has to comply with all general laws for running a business in Germany, e.g. payment of social security contributions and taxes.

Finally, as a special rule, agents for insurance or reinsurance contracts need approval by the Chamber of Commerce according to section 43d of the German Industrial Code (Gewerbeordnung, GewO).

Is it possible to apply a foreign law?

An international agency agreement can be governed by foreign law. The possibilities and limitations of a choice of law are stipulated by Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I Regulation), see Guide on EU law. For contracts concluded on or before December 17, 2009 the applicable law is determined according to articles 27 and 28 of the German Introductory Act to the Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuch – EGBGB) which are very similar to the provisions of the Rome I Regulation.

As provided by the Rome I Regulation, the parties are free to choose the applicable law. Choice-of-law clauses are in principle fully recognized by German courts. However, the conflict-of-law public policy exception in article 9 of the Rome I Regulation might overrule the law chosen by the parties if that foreign law or a specific provision of that foreign law is contrary to fundamental principles of the national law.

Beyond the EU Agency Directive, section 92c of the HGB allows excluding the agent’s claim for indemnity/compensation upon termination if the agent is doing business outside the EU and the EEA for a German principal. Such exclusion is even allowed if the national law of the country where the agent is doing business grants mandatorily such a claim. But in the event that said national law would be the one of a European member state because the agent has an office in a European member state, it would not be allowed to exclude the claim for indemnity/compensation upon termination.
Moreover, article 3 para. 3 of the Rome I Regulation can limit the parties’ choice-of-law as it stipulates that the parties are not allowed to deviate from mandatory provisions of German law if there is no sufficient connection to the respective foreign law. As a result, all German mandatory provisions of the German agency law will apply, which means not only the international mandatory provisions. A mandatory provision of the German agency law is section 87a para. 2 and 3 of the HGB regarding the payment of commission (see also remarks under 9. below). Furthermore, it is mandatory that the principle pays the commission at the end of the accounting and payment period stipulated in section 87c para.1 of the HGB.

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

It is possible to submit disputes arising from an international agency agreement to a foreign jurisdiction. The validity of an agreement on the place of jurisdiction must be appraised in accordance with lex fori (= law of the place where the lawsuit takes place). In Germany, this is primarily the Recast Brussels Regulation (EU) No. 1215/2012 (see Guide on EU law) and the revised Lugano Convention of 2007.

For other international cases, agreements on jurisdiction are possible according to sections 38 and 40 of the German Civil Procedure Act (Zivilprozessordnung, ZPO). In principle, such agreements are limited to businesses where both parties are merchants (= Kaufmann) within the meaning of section 1 of the HGB, as it will regularly be the case for agency agreements. Agreements on jurisdiction may be concluded expressively or tacitly; there are no requirements as to the form (see section 38 para. 1 of the ZPO).

Differently from the Recast Brussels Regulation, agreements according to section 38 of the ZPO are generally not to be considered as to exclusive jurisdiction. In fact, it will be determined by means of interpretation whether the parties intended to agree that the chosen court shall have exclusive jurisdiction or not.


The German law on arbitration is contained in sections 1025 et seq. of the ZPO. It is an almost literal adaptation of the UNCITRAL Model Law. Almost all commercial disputes, including antitrust law, competition law, and IP law, can be subject to arbitration (section 1030 para. 1 of the ZPO). The only disputes the law on arbitration explicitly declare non-arbitrable are disputes relating to the existence of a lease of residential accommodation (section 1030 para. 2 of the ZPO).
In order to be valid, the arbitration agreement must state that all or specific disputes between the parties in relation to a ‘specific legal relationship’ shall be subject to arbitration. It is recommendable, even if not required by law, to agree on the number of arbitrators, the place and language of arbitration as well as the applicable substantive law. In B2B cases, arbitration agreements can be concluded as a separate agreement or be included as a clause in the main contract. In any event, the arbitration agreement constitutes a separate agreement, with its validity and enforceability determined independently of the main contract.

As explained in detail under 8. below, an agent doing business mainly in the EU member states is entitled to an indemnity/compensation upon termination according to articles 17-19 of the EU Agency Directive and the respective national laws. Such entitlement is internationally mandatory. The German courts decided on the ineffectiveness of a jurisdiction clause leading to a court situated outside the EU (it was about Virginia, USA) of which it is expected that it will not grant said internationally mandatory entitlement (see judgment of the German Federal Court of Justice of September 5, 2012, file no. VII ZR 25/12). Such case law also applies to an arbitration agreement.

Agency agreement termination

If the contractual parties have not agreed otherwise, the agency agreement can be terminated by both parties respecting the legal notice periods which are as follows: During the first contract year 1 month, during the second contract year 2 months, from the third to the fifth contract year 3 months, and as of the sixth contract year 6 months. The termination of an agency contract takes effect by the end of a month. In the contract, the parties can agree on other notice periods. It is mandatory that the principal’s termination notice period shall not be shorter than the one for the agent.

The agency agreement can be limited in time from the beginning. It will then terminate automatically after the expiration of the time limit, without having to be terminated explicity. It is important that it ends de facto after the time limit of the contractual agreement. According to section 89 para. 3 sent. 1 of the HGB, a timely limited agency agreement is considered extended indefinitely if resumed by both parties.

The agency agreement can be terminated extraordinarily by both parties for good cause. Good cause is given when it is unreasonable for the terminating party to continue the contract until it can be terminated ordinarily. Usually, this is only the case for serious breaches of contract, for example, breach of the non-compete obligation. The right to terminate an agency agreement extraordinarily cannot be excluded. Usually, before terminating a contract extraordinarily, a warning letter is issued in order to give the contract partner the opportunity to remedy the breach of contract.

Termination indemnity

According to section 89b para. 1 of the HGB, the commercial agent is entitled to claim indemnity after the termination of the agency agreement. Germany has opted for an indemnity as provided by article 17 para. 2 of the EU Agency Directive.

After the termination of the agency agreement, the commercial agent must assert his claim for indemnity within a period of one year after the termination of the contract in order to avoid that his right to indemnity is precluded (section 89b para. 4 sent. 2 of the HGB).

The commercial agent is only entitled to claim indemnity under section 89b para. 1 of the HGB if and in so far as the principal benefits substantially, even after the termination of the agreement, from the business relationships which have been acquired or increased significantly by the agent.

A ‘business relationship’ in the sense of section 89b no. 1 of the HGB requires a strong link to new regular customers that have been conveyed to the principal by the agent. A sufficient business link is only established if within a certain time period the principal may realistically count on follow-up orders from these customers.

According to section 89b para. 1 sent. 2 of the HGB, the agent can only receive indemnity for a loss of commission in relation to further orders from new customers who were acquired by him. The indemnity claim is not only applicable to the acquisition of new customers, but also to an essential extension of existing business relationships if the agent has significantly increased the volume of business with existing customers.

The substantial benefit for the principal is to be seen in the future utilization of the business relationship with the customers acquired by the agent, which implies a prospect of profit without the need to pay any commission to the agent.

In order to claim indemnity, the agent also has to prove the loss of commission payments in consequence of the termination of the agency agreement. Even if the agent can prove that the above mentioned two conditions are fulfilled, the agent is only entitled to an indemnity if and to the extent that the payment of this indemnity is equitable, in regard to all the circumstances and, in particular, the commission lost by the agent on the business transacted with such customers (section 89b para. 1 no. 3 of the HGB). This regulation is an important corrective which can result in a significant reduction of the agent’s indemnity claim.

According to section 89b para. 3 no. 1 of the HGB, the agent cannot claim indemnity if he has terminated the contract himself, unless the principal has given sufficient cause for the termination of the contract by the agent, i.e. if the principal breached his duties, or the agent cannot be reasonably expected to continue his activity due to his age or illness. The agent's right to claim indemnity is also excluded if the principal has terminated the contract and the agent has given sufficient cause for this termination by his misconduct (section 89b para. 3 no. 2 of the HGB), i.e. illegitimate competition or other serious contractual infringements. The indemnity claim is also excluded if a third person enters into the contractual relationship between the principal and the agent replacing the latter on the grounds of an agreement with the principal (section 89b para. 3 no. 3 of the HGB).

Concerning the specific amount of the indemnity claim, section 89b of the HGB stipulates that the agent is entitled to claim an ‘adequate compensation’. The exact amount of the indemnity has to be calculated in consideration of all circumstances on a case-by-case basis. 


The maximum amount of the indemnity claim is limited to one annual commission based on the average amount of the remuneration of the agent during the last five years preceding the termination of the contract. Should the contractual relationship not have lasted for five years, the average annual amount is to be calculated on the basis of the actual duration of the contract (section 89b para. 2 of the HGB).

Other peculiarities

Section 86a para. 1 of the HGB stipulates in line with article 4 para.2a of the EU Agency Directive that a principal must provide the agent with the documentation necessary for the performance of the agency contract. The German Federal Court of Justice has ruled that the term ’documentation’ must be interpreted extensively in the sense that the principal has to provide his agent with everything he needs for the fulfilment of the contractual obligations, e.g. the presentation of the products to the customers (see judgment of May 4, 2011, file no. VIII ZR 11/10). Therefore, a contractual agreement on the purchase of sample collections by the agent as often seen in fashion and apparel is void under German law. The sample collection must be entrusted free of charge to the agent. However, the agent is obliged to return the sample collection to the principal when no longer needed.

According to Section 87a para. 1 of the HGB, the agent has a right to commission as soon as and insofar as the principal has fulfilled his contractual duty, e.g. delivery of purchased goods. Although the parties may agree on a later due date for the commission payment, the agent has, in any event, a right to a reasonable advance payment being due no later than the last day of the month following the fulfilment of the principal’s obligation. Independent of any agreement, the agent can claim the payment of commission as soon as the customer has made his payment to the principal. If it is certain that the customer will not perform, the agent has no right to commission; commission payments already received have to be returned (section 87a para. 2 of the HGB). In case the customer is in default of payment, the principal has the general duty to initiate legal proceeding against the customer to enforce the payment claim unless it is clear that the customer is unable to pay. Otherwise, the agent retains the right to commission.

In absence of an express contractual provision, the agent is not subject to a post-contractual non-compete obligation. According to section 90a of the HGB, a post-contractual non-compete obligation can be agreed upon in writing, however, only up to a maximum period of two years after termination of the agreement. The obligation must be limited to the territory or customer group and to the products for which the agency agreement was executed. In addition, the agreement must include reasonable compensation for the agent for the non-compete obligation.

Under German law, distributors also have a right to claim an indemnity upon termination of a distribution agreement if they are integrated into the sales organization of the manufacturer and obliged (due to agreement or factually) to forward customer data during or at termination of a contract. This claim is granted in analogous application of agency law, e.g. section 89b of the HGB. If the distributor operates outside the EEA, the claim for indemnity can be excluded at any time, i.e. already in the distributorship agreement itself. For distributors operating inside the EEA, the claim for indemnity cannot be excluded before termination if the two conditions given above are met, see judgment of the German Federal Court of Justice of February 25, 2016, no. VII ZR 102/15.

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