The Directive was implemented into German law by amending the Commercial Code on 23 October 1989. The law has been in force since 1 January 1990 and applies to contracts in operation after 1 January 1994. A commercial agent is defined as a self-employed intermediary who has continuing authority to negotiate on behalf of the principal and who solicits orders in the name and at the expense of such principal. Neither employees nor distributors, who are reselling goods in their own name and at their own expense, are commercial agents. However, German courts have applied various provisions to both commercial agents and distributors, where the relationship with the principal exceeds the usual seller-buyer relationship. Most statutory provisions applicable to commercial agents apply analogously to distributors if:
the distributor is incorporated in the sales organisation of the principal; and
the principal has the use of the customer list of the distributor during or at the end of the contractual relationship.
Generally, the parties may choose the applicable law. However, pursuant to a recent judgment of the European Court of Justice, a commercial agent carrying on his activities within the EU cannot evade certain rights granted to commercial agents even if the principal is established outside the EU and the parties have explicitly chosen the law of the principal to apply. If no applicable law has been specified, the law where the commercial agent mainly performs his activities shall apply.
Most provisions of the German Commercial Code dealing with commercial agents are mandatory provisions and may not be modified to the detriment of the commercial agent unless the agent carries out his activities outside the EU or the European Economic Area.
Indemnity, compensation and termination
Goodwill indemnity claims have been recognised in German law since 1953. The commercial agent is entitled to an indemnity claim upon termination of the agency agreement, where there has been no fault on the part of the agent, if:
the termination deprives the commercial agent of benefits in the future;
the principal retains substantial advantages from soliciting new customers or expanding business relations; or
the compensation is fair.
The maximum amount of compensation is no more than the average annual commission over the last five years. If the duration of the contract is less than five years the annual average remuneration is calculated according to the duration of the agreement. Due to the complex calculation, disputes are often settled out of court and an average of 50% of the maximum indemnity is paid out. The indemnity claim may not be waived in advance and must be ascertained within one year of the termination date. Since 15 December 2004 the limitation period is generally three years.
The right to indemnity is excluded if:
the agent has terminated the agreement, unless the agents reason for terminating is the principal’s misconduct or the agent cannot continue his activity due to illness or age;
the principal has terminated the contract due to the agents negligent conduct; or
the agent assigns the agency agreement to a third party with the consent of the principal.
If the commercial agent has not solicited any new customers, an indemnity claim theoretically exists, but it would amount to nothing. This can be easily proven where a list of the principal's existing customers is attached to the original commercial agency agreement.
Insurance agents are only entitled to claim commissions for business which has been acquired through their activity. In this situation, the right to indemnity exists for a maximum of three average yearly remunerations. This differs from the usual one year- remuneration.
As principals are typically concerned about indemnity claims, alternatives to commercial agency agreements can be considered, for example, the use of salaried employees or distribution agreements.
Indemnity payments are not paid to salaried employees as employees are protected by employment law provisions and termination must be for personal or operational reasons. An agency agreement will be assumed by the Courts to in fact be an employment agreement if the commercial agent is unable to act independently from the principal.
Another alternative is to enter into a distribution agreement whereby the distributor sells goods belonging to the principal in his own name and at his own expense. However, a distributor integrated in the principal's distribution organisation is entitled to an indemnity.
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