COMMERCIAL AGENT
The sales representative is a sales assistant. He is an independent entrepreneur and is not involved as an employee in the company. He arranges contracts for other companies with the end customer or consumer. His independence is characterized by the fact that a sales representative is permanent, they have designed their own career and can determine their own working hours. A sales representative can be both a natural person and a legal person, such as a GmbH or OHG. There is a permanent contractual relationship between the sales representative and the company.
The agency contract is the centerpiece and the basis for the activity of the agency.
The agency contract should contain the precise rights and obligations of the contracting parties. The product or service to be distributed by the sales representative must be identified as precisely as possible. The amount of the commission, the requirements for the creation of the commission as well as the reimbursement of expenses of the sales representative and the duration of the contract should be regulated in the contract.
Possible peculiarities of commercial representation should also be specified. An exclusive representative is a representative who can only work for one company. Further services by the sales representative for other companies are then not permitted. An area representative is a sales representative who acts as the only representative for a company in a geographically defined area (district protection). It is also possible for the sales representative to take over a certain group of customers (customer protection).
During the duration of the contract, the commercial agent is prohibited from competing in favor of the company. This follows from the legal principle that the sales representative must protect the interests of the company. The agent’s interests are impaired when he performs his services for a competing company. The scope of the competition ban depends on the type of contract. A comprehensive ban on competition would be permissible vis-à-vis an exclusive agent. If the sales representative merely mediates contracts, a far-reaching ban on competition may be inadmissible. The individual clauses on the non-competition clause can be checked by a lawyer specializing in commercial law.
The company has rights of defense against the sales representative if the sales representative violates the non-competition clause. The company may request injunction from the sales representative. Also, sales representatives can be sued for damages. The company can warn the sales representative. The legal consequences can extend to an extraordinary termination of the agency contract.
Once the contract between the sales representative and the company has ended, there is basically no longer a ban on competition. The sales representative can then start working for a competing company. Many contracts contain a retrospective ban on competition. The German Commercial Code sets out four prerequisites for an effective non-competition clause:
A violation of the subsequent non-competition clause has similar consequences as the violation of the non-competition clause while working for the company: A claim for damages and an injunction can be asserted against the sales representative. Finally, the sales representative also loses his right to compensation for the subsequent non-competition clause.
The German Federal Court of Justice has imposed further requirements on the contractual clause for the subsequent non-competition clause. In good faith, the interests of the sales representative and those of the company must be carefully weighed up. The subsequent non-competition clause must not unduly disadvantage the sales representative. A regulation is inadequate, which disadvantages the commercial agent in that the company can misuse his own interests at the expense of the commercial agent through a one-sided contract drafting, without sufficiently taking into account his interests from the outset and granting him adequate compensation. This means that a comprehensive ban on competition or a clause without adequate maternity leave compensation can be ineffective. The commercial agency contract should therefore be checked by a lawyer specializing in commercial law to determine whether a clause on the subsequent non-competition clause is legally effective.
If the commercial contract is concluded for a certain period, the contract cannot be terminated properly. The sales representative and the company can conclude a termination agreement. In this case, the contract can be terminated if both contracting parties agree to terminate the contract. A lawyer specializing in commercial law should check whether the contract can be effectively terminated to rule out any claims for compensation on the part of the other party in the event of termination.
An unlimited contract can be terminated properly. In the first contract year, the contract can be terminated with one month’s notice, in the second contract year with two months’ notice and in the third to fifth year of the contract with three months’ notice. After a contract period of five years, the contractual relationship can be terminated with a period of six months. The entrepreneur must not have a shorter notice period than the sales representative.
An extraordinary termination of the agency contract is possible if there is an important reason for the termination. Both the company and the sales representative can claim an important reason. If there is an important reason, it should be checked if the continuation of the contract can be expected from the respective contracting party on the next termination date. An important reason exists if there is a material breach of the obligations of the contract. A reason for termination for the enterprise is a violation of the non-competition clause, the insolvency of the sales representative or a significant drop in sales. An important reason for the sales representative is an inadmissible reduction in commission or a one-sided area reduction by the company. Before extraordinary termination, it is fundamentally necessary for the contractual partner to be warned of breaches of duty and for further breaches of duty to be threatened with extraordinary warnings. A warning is not required if the breach of duty is so significant that the relationship of trust is finally destroyed, so that the terminating party can no longer be expected to continue the contract. Our law firm advises companies and commercial agents on the conditions of termination in individual cases.
The commercial agent has a compensation claim against the entrepreneur when the commercial agency contract ends. By terminating the contract with the sales representative, the sales representative’s claim to commission expires. The entrepreneur has the advantage that he can continue to conclude contracts with the customers who have been brokered by sales representatives. As compensation for the acquired customer base, there is a claim for compensation from the sales representative when the contract is terminated. According to the law, the sales representative receives appropriate compensation. The commercial agent’s right to compensation cannot be excluded in advance.
In addition to commercial agents, insurance agents and building society representatives are also legally entitled to compensation.
There are three prerequisites for the commercial agent to be entitled to compensation:
The contract between the sales representative and the entrepreneur must have ended. The contract can either have been terminated by a termination agreement or by termination.
The company must have significant advantages which continue to exist after the termination of the contractual relationship. An advantage can be the customer base created by the sales representative. If subsequent orders from customers are to be expected, these advantages are considerable. Unless the entrepreneur can prove otherwise, it can be assumed that the company will continue to do business with the sales representative’s customers. Existing customers which the sales representative has not recruited are not among the customers who bring the entrepreneur an advantage. This exclusion only applies if the sales representative has not increased business with these customers. In this case, the sales representative has a right to compensation.
The law also requires that equity compensation be equal. This is the amount of the compensation claim. All circumstances must be considered in each individual case. A lower compensation claim is justifiable if the entrepreneur has financed the sales representative’s pension scheme – even if the entrepreneur has paid the sales representative different remuneration than the commission to pay a small compensation. A higher payment is justifiable if the customer acquisition was complex for the sales representative or if the sales representative has maintained the customer relationship for years.
The Commercial Code stipulates that the commercial agent’s claim to compensation is excluded in several cases:
The commercial agent’s right to compensation must be asserted within one year of the termination of the contractual relationship. The claim is excluded if it is asserted later than one year after the termination of the contract. It is recommended to assert the claim in writing and to have proof of receipt of the letter of claim.
If the sales representative has terminated the contract, the claim is generally excluded. However, this does not apply if the sales representative has an important reason for terminating the contract. If the cause of the termination is a breach of duty on the part of the company, such as a missing or late payment or underpayment of the commission or the downsizing of the district, the right to compensation continues. In such a case, the sales representative should warn the company beforehand so as not to jeopardize the compensation claim.
If the sales representative quits because he is no longer able to carry out his work due to illness or old age, the right to compensation continues to exist. If the sales representative is younger than 65 years of age, the right to compensation generally only remains if there are exceptional reasons.
If the enterprise quits due to a breach of duty by the commercial agent, the commercial agent generally loses his claim. This is the case if the non-competition clause is violated.
If the entrepreneur enters into an agreement with the commercial agent, with which a third party enters the contractual relationship in place of the commercial agent, the commercial agent loses his right to compensation. However, this agreement may not be concluded before the termination of the contractual relationship.
In Germany, a so-called raw compensation calculation is to be carried out for the amount of the compensation claim. It ties in with the agent’s loss of commission because of the termination. The total of the commissions that the sales representative has achieved with newly acquired customers in the past twelve months and with existing customers – when customers’ relations are intensified – is formed. Depending on the individual case, an amount of 10% and 30% of sales is deducted for customers who break off the business relationship. For the next four subsequent years, the commissions are to be calculated on this basis. A possible equity deduction is then made. The upper limit of the compensation claim is the average of the annual remuneration in previous years.
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