05 Dec The Decalogue of Spanish agency contracts

The end of an agency agreement is often a source of troubles, mostly if we are talking about the compensation payable to the agent at termination of the deal in virtue of the art. 28 of the Spanish Law Agency (compensation for clients earned).

This amount to be paid as compensation for clients earned by the agent, and also the loss of profits for the agent are producing a lot of court cases in Spain.

Here it is a Decalogue of ten basic points in this issue:

1. The compensation for clients earned by the company due to agents work is recognized either the contract was for a specific time or undetermined period of time, so the duration of the contract is not a legal impediment in order to obtain this compensation.

2. The Spanish Law which provides the right also takes into account the position of the parties at the end of the agreement. For example if there is a non-competition clause in the agreement maybe the indemnity or benefit payable is justified. In the other hand if there is no profit for the company because of the activity of the agent at the end of the deal this right is not applicable.

3. The commercial agent’s dead is not a cause of termination of compensation’s right. So, this benefit payable is automatically included like an asset in his inheritance. So, it would be important in this case to take care of the tax implications for inheritors.

4. The highest potential compensation is the average of the wages received by the commercial agent (or invoices issued by the agent) in the last 5 years, or in the years the agreement is existing if it was existing for a shorter period of time.

5. If there is an exclusivity clauses in the agreement and the employer makes an unilateral termination of the contract the compensation has to include besides the indemnity of clientele also other concepts like the lieu of notice or the compensation for damages incurred.

6. The compensation may be applied also to distributors and all kind of sales representatives, because of the absence of specific regulation about the distribution agreement. But this analogy is not produced automatically –The Supreme Court judgment of 16-March-2016 statutes that there is an obligation for the distributor or sales representative to prove its integration on the commercial network of the employee in order to equalize the standing between a commercial agent and a distributor o sales representative.

7. And as far as the loss of profit the agent is not going to receive it is important to say that in the same judgment aforementioned the Supreme Courts concludes that “it must be an effective and proven damage which is not happened when the injury or damage is simply hypothetical or purely possible.”

8. Now It is time to explain the assumptions on which the compensation is not appropriate:

-In case of termination of the agreement because of the failure’s obligations by the agent such as the violation of good faith, breach of non-compete clauses…

– Obviously if it is the agent who unilaterally terminates the contract.

– When the commercial agent has re-assigned his position in the agreement top a thirty party. If it happened, this third-party becomes the ownership of all the rights and obligations of the previous commercial agent.

9. The ninth point is about a specific clause in some agreements. In this clauses the commercial agent waives its right to take any legal action in the future against the company. The Spanish Supreme Court repeatedly says that this kind of clauses are NULL as a matter of law. So this right is not renounceable.

10. At last but not least, we have to notice that there is a time deadline or time limit in order to take legal action in courts. This period of time is 1 year after the termination of the contract.

As there are no objective rules in this matter and also because of the fact that the appropriateness of the compensation/indemnity depends on the proof practiced in court, there are a lot of different cases and hypothesis. So, the company and the commercial agent should hire a specialized legal team in this cases, not only in the  negotiation and litigation in court but also in the initial communication of the conclusion of the contract, as Courts DO NOT admit allegations that have not been included in the termination’s agreement letter.

If you have a case like forenamed, please do not hesitate to contact Navarro Llima Abogados S.L. for further information.