By Sjoerd Yntem
Pursuant to Article 7:442 Paragraph 1 of the Dutch Civil Code, an agent is, in principle, entitled to commission at the end of the agency agreement. A number of requirements have been set in law for this. In this blog, contract law attorney Sjoerd Yntema discusses the commission liability at the end of the agency agreement.
The agency agreement
According to Article 7:428 of the Dutch Civil Code, an agency agreement is an agreement in which a commercial agent mediates the conclusion of agreements for a principal. Agency agreements are often long-term agreements in which the agent makes an effort to create a sales market in a specific area for the principal, and mediates the conclusion of agreements between the principal and third parties. Upon termination of the agency agreement, there may be justification for the commercial agent to be entitled to commission.
When is a commission justified?
The commercial agent is entitled to receive commission if he/she has brought new customers to the principal, or has significantly expanded agreements with existing customers to the significant advantage of the principal. In addition, the commission requires that the payment of the commission is fair, taking all the circumstances into consideration. In particular, commission lost from agreements with customers plays a major role here. In an important judgement, the Supreme Court has ruled that an agent must demonstrate that the principal derives an advantage from established or intensified customer relationships after termination of the agency agreement. If this requirement of advantage is met, the calculation of the commission amount is to be completed.
Amount of the commission
Pursuant to Article 7:442 Paragraph 2 of the Dutch Civil Code, the amount of the commission must not exceed one year’s remuneration. The calculation of this one-year remuneration is based on the average of the previous five years. If the agency agreement has lasted less than five years, the average of the entire duration of the agency agreement is taken into account. It is important for the commercial agent to make it known, within one year at the latest, that he/she requires the commission. If the commercial agent does not do this, he/she loses the right to the commission.
Calculation of the commission
The aforementioned maximum amount of the commission is based on a fairly simple rule. In the judgement dated 2 November 2012, the Supreme Court clarified how the commission must be calculated: the so-called three-phase doctrine.
In the first phase, the advantage the principal derives from transactions with a customer, which has been brought in by the agent, is established. The rationale behind this is that the principal can continue to use customer relationships after termination of the agency agreement without being obliged to pay commission to the commercial agent. The principal’s advantage is established based on the “gross commission” earned in the last 12 months. This amount is then corrected to take into account the following three factors:i) the duration of the advantage that the principal can expect to derive from the transactions with the customers;ii) the evolution of the customer base; andiii) the accelerated receipt of commission income by the agent who receives a lump sum commission payment.
During this phase, a check is carried out to see whether there is a reason for increasing or decreasing the amount established in Phase one. This established amount is therefore adjusted with a view to fairness. All circumstances are important for this
The third phase establishes whether the amount calculated in the second phase exceeds the maximum amount. As stated, the maximum amount is equivalent to the remuneration over one year, calculated on the basis of the average of five years.
Do you have questions about the calculation of the commission upon termination of the agency agreement?
In practice, it is not uncommon for the principal and the agent to disagree about the termination and the commission to be paid when their agency agreement is terminated. AMS lawyers have extensive experience in advising and litigating on such matters.