Council Directive 86/653 was implemented into French law by Law 91.593 dated 25 June 1991 (the “Law”). It was incorporated as article L.134-1 of the French Commercial Code (the “Code”). The Law applies to all commercial agency agreements and came into force on 1 January 1994. The Law applies to all agreements entered into after 28 June 1991.
Under Article L.134-1 of the Code, a commercial agent is an individual or a legal entity who, on a continuous and independent basis, and without being bound by an employment contract, negotiates and/or concludes agreements for the purchase or sale of products or services in the name, and on behalf of one or several principals.
An agent must comply with the terms of the agency agreement, report regularly on the business to his principal and respect the principal’s instruction. There are duties to account for monies earned and keep information confidential. The agent may not compete with his principal (including acting as an agent for the distribution of competing products) and may be prevented from representing other principals if there is an exclusivity clause in the agency agreement. The commercial agent definition is not dependant on the agreement of the parties or on the name of their agreement, merely the conditions of the activity actually exercised by the agent.
The principal’s main obligation is to pay the agent its commission. The agent is entitled to commission on all transactions concluded during the term of the agreement and those transactions concluded a reasonable time after the termination where the transaction was mainly due to the efforts of the agent.
The agency agreement should specify the rate of the commercial agent’s commission. If the agreement does not specify the level of commission it will be determined by Articles 5 to 11 of the Law (Articles L. 134-5 to L. 134-11 of the Code). Under these Articles, commercial agents shall be entitled to remuneration in accordance with the usual practice in the sector of activity covered by their mandate and in which they carry out their activity. In the absence of any usual practice, the commercial agent shall be entitled to a reasonable remuneration which takes account of all elements involved in the operation.
Parties may choose the applicable law of the agreement. If no applicable law is specified then the local law where the agent performs its main activities will apply.
The parties may agree, in writing, to waive the application of the Law where the agent is engaged in secondary activities. The contract is then governed by Code’s provisions relating to the so-called “mandate d’interet commun”.
Term and Notice
French law provides a high level of protection to commercial agents.
An agency agreement can be for either a fixed or an indefinite term and does not have to be in writing (although it is advisable). If the relations between the parties continue after the term has ended it is automatically transformed into an agreement with an indefinite term.
If the agency agreement is for an indefinite term, each party may end this agreement by giving prior notice (Article L.134-11 of the Code). The notice period should be one month for each year of the agreement with a maximum of 3 months. The parties may not agree a shorter period.
Indemnity or compensation on termination
An agent is entitled to an indemnity on termination of the contract for an indefinite period. Although there is in principle no predetermined scale, a figure equivalent to twice the agent’s average annual gross remuneration over the two or three years prior to termination is usually awarded.
The amount of the indemnity is determined according to several elements, in particular:
the origin of the custom/clientele, its significance and age;
the loss of commissions to which the agent could reasonably claim; and
the goodwill value of the agency to the principals business.
The parties cannot contract out of the indemnity.
The agent must make a claim for compensation within one year of termination of the agreement otherwise the right to indemnity is forfeited.
The indemnity is also due on the death of the agent (Article L.134-12 paragraph 3) or on the agent’s resignation if this resignation is motivated by his age or physical disability preventing him from continuing the agreement.
If the contract between an agent and its principal is for a fixed term, commercial agents are entitled to an “indemnity of termination”. Under this indemnity, the agent is entitled to an indemnity equivalent to the amount of the commission that he would have received between the date of termination and the term of the agreement.
An indemnity is not due under either a fixed or indefinite term agreement in the following circumstances:
serious negligence or breach of contract by the agent;
termination by the commercial agent unless such termination is a result of circumstances caused by the principal (such as the unilateral modification of the terms of the agency agreement);
assignment of the agency agreement to a third party without the principal’s consent; and
where the principal terminates the contract with good cause i.e. competing with the principal, divulging trade secrets, or the termination of the contract by the agent without notice or justification.
The Directive is applicable (particularly the contract termination indemnity) where an agent conducts his activity in the EU even though the main office is registered outside the EU.
The French Supreme Court (“Cour de Cassation”) and the European Court of Justice (the “ECJ”) have taken a different position on the contract termination indemnity.
For the ECJ, Articles 17 and 18 of the EU Directive 86/653, which grant, an indemnity to the representative at the termination of the contract, have to be applied when the agent has an activity inside the EU. This is the case even where its main office is registered in a country outside the EU and is governed by the law of a non-EU country Ingmar GB Ltd vs. Eaton Leonard Technologies Inc No 381/98.
The French Supreme Court (Cass. Com 8 November 2000 No 237) has decided that the French Law of 25 June 1991 has only domestic and not international effect. Consequently, the French court refused to grant an indemnity to an agent based in France working for an American firm with a contract submitted to the law and jurisdiction of the state of the New York.
The decision of the French Supreme Court was drafted by the judges before the ECJ rendered its decision on 9 November 2000. Consequently, the French Supreme Court, in its annual report, has declared that its decision of 8 November 2000 had been overruled by the above-mentioned decision of the ECJ. As a consequence, the decision handed down by the Cour de Cassation could not be considered as a precedent and the decision of the ECJ on the contract termination indemnity applies in France.
A commercial agency contract may be redefined as an employment contract if the agent has a permanent subordinate legal relationship with the principal. This would bypass the obligations of the Law.
Please click on any of the links below to view other reports by country:
Return to introduction
View the quick reference summary tableInternational Dispute Resolution Group