There are various reasons for the termination of commercial agent agreements.
The principal (this is the party that commissions the commercial agent and whose products are being distributed)
- would like, for example, to distribute its products themselves in the sales territory of the commercial agent,
- would like to assign the contract territory to another commercial agent,
- is simply dissatisfied with the performance of the commercial agent or
- has accused the commercial agent of breach of contract.
On the other hand, the commercial agent may also want to terminate the contract. He may prefer to work for a competitor, which is not allowed due to the existing agent agreement, or he may want to stop working on grounds of age.
For clarification: A commercial agent is an independent businessman who is permanently entrusted to procure business for the principal. This is mainly to be distinguished from an authorized dealer who buys and resells products of the principal for their own account.
The Commercial Code regulates termination of the agreement
The German Commercial Code (Handelsgesetzbuch, HGB) contains several regulations for the termination of commercial agent agreements. According to it, a commercial agent agreement may be terminated with a notice period of one month (in the first year) to up to six months (after a contractual period of five years) at the end of a calendar month (Section 89 (1) of the Commercial Code).
However, first of all, it needs to be checked whether the German Commercial Code is applicable to the concerned agreement.
Observe supplementary regulation in the agreement
Commercial agent agreements typically contain provisions on termination and the subsequent settlement that must be observed in more detail, such as provisions concerning
- the formalities of the termination,
- notice periods and possible termination dates (e.g. only at the end of the year),
- commission claims for transactions concluded after termination,
- a post-contractual non-competition clause and
- the return of samples and other materials.
However, not all provisions of this kind are effective under German law. For example, it is not permissible to shorten the statutory notice periods.
Frequent dispute over settlement of commissions and compensation claim of commercial agent
After termination of the commercial agent agreement, the agent’s commissions still need to be settled, whereby according to the law, the agent is entitled to commission not only for transactions concluded up to termination, but also for transactions concluded thereafter if the conclusion of the transaction is predominantly attributable to the agent’s activities (§ 87 HGB).
Since, by German law, commissions are not due until the principal has executed the transaction (§ 87a HGB) and it is often contractually agreed that they are first due after payment by the customer, the settlement can drag on for a longer period after the agreement has ended. There are often disputes as to whether and for which transactions commissions are to be paid after termination.
In addition, in most cases, the commercial agent has a statutory “compensation claim” to payment of an appropriate amount as compensation for acquiring new customers for the principal, which can amount to up to one year’s commission (§ 89b HGB). The calculation of this compensation claim is complex.
The compensation claim does not exist if the principal has terminated the commercial agent for good cause due to culpable conduct on the part of the commercial agent. Also it does not exist if the commercial agent has terminated the agreement without the principal having given cause for this or if age or illness were grounds for the termination.
Thus, disputes often arise between the principal and the commercial agent about the existence and the amount of this claim.
Agreement on termination recommended
In order to avoid disputes between the principal and the commercial agent in connection with the termination of the agreement altogether or to end them by amicable settlement, it is often advisable to conclude a (short) agreement on the termination of the commercial agent agreement after it has been terminated by unilateral notice (or instead of notice), in which all outstanding issues are settled.
Such a contractual arrangement not only avoids or ends disputes, but also provides the parties with planning security and favors an orderly transfer of existing customer relationships and sales materials to the commercial agent’s successor or the principal themselves and reduces the risk of business-damaging statements by the parties about the respective other party (as these should be prohibited in the agreement).
Content of a termination contract
In such an agreement, the parties may agree on, for example:
- the effectiveness of the termination and the date of termination of the commercial agent agreement
- outstanding commission claims and, to the extent that these cannot yet be settled, which pending transactions are subject to commission and the terms for a final commission settlement
- the outstanding reimbursement of expenses
- the information of the customers in the contract territory about the termination
- the return of brochures, samples and other sales materials
- refraining from making business-damaging statements about the other party or the products and services of the principal
It should be noted that an arrangement prior to termination of the agreement that restricts the compensation claim is invalid under the law. It is therefore advisable to conclude a separate agreement on the compensation claim after the agreement has been terminated.
Then the amount of the compensation claim and, for example, payment in installments can also be stipulated. According to the law, the compensation claim would be due immediately after the termination of the agreement.
WINHELLER advises on all aspects of commercial agent agreements
We will gladly advise you with respect to agent agreements, be it drafting and concluding or with respect to disputes or termination. Our experience in this field enables us to propose constructive solutions for all situations. Feel free to contact us with your questions!