Article Mr. C. Damen – Three conditions for the right to customer compensation for the agent upon termination of the agency agreement – ​​dated August 26, 2020

In the agency relationship between an agent and a client (the principal), the parties record their cooperation agreements in an agency agreement. If the principal subsequently unilaterally terminates the agency agreement on the basis of a legally valid termination clause in the agency agreement, the agent is entitled to statutory customer compensation. When is the agent entitled to the customer compensation and if such entitlement exists, how should it then be calculated?

An agent mediates in the conclusion of agreements between the client (the principal) and third parties. It is customary for the agent to receive a retainer or commission in return for his or her intermediation between the principal and its clients. The agency agreement regulates the relationship between the agent and the principal. The essence of agency therefore concerns the mediation of the agent in the conclusion of agreements between the principal and its customers.

The purpose of the client indemnity is to compensate the principal for the intended future benefit of the agent’s efforts at the end of the agency relationship. After the agency relationship with the agent has ended, the principal retains the customer base built up by the agent. The customer compensation serves as compensation for the established customer base for the agent upon termination of the agency relationship and is based on the Agency Directive (86/653/EEC of the Council of 18 December 1986). 

In the Dutch and European legal system, an agent is seen as an economically vulnerable party and therefore enjoys far-reaching legal protection. However, to be able to claim customer compensation as an agent, there are three requirements.

Firstly, it is important that the agent has introduced new customers or has significantly increased sales with existing customers as a result of his actions. Second, these new customers (or expansion of existing customer sales) are required to provide a significant benefit to the principal. In addition, it can be expected that these customers will also generate financial benefits in the future. Thirdly, it is required that the commercial agent acts proactively by claiming the customer compensation himself, within one year after the termination of the agency relationship. If the agent does not invoke the customer compensation in time, that right will lapse.

Only in exceptional cases is the agent not (any longer) entitled to customer compensation. This is the case, for example, when the termination of the agency agreement is due to circumstances in the agent’s sphere of risk. For example, if there is a question of his bankruptcy or if the agent has violated the non-compete clause in the agency agreement.

If the agent terminates the agreement himself, there is in principle no right to a customer compensation. However, if such termination can be justified, for example due to retirement or illness, the right to customer compensation remains. However, if the agent transfers his agency rights to a third party in agreement with the principal, the agent loses the right to the client compensation. After all, the agency rights, including the customer compensation, have then been transferred to a third party, as a result of which the agent can no longer invoke them. 

The calculation of the customer fee also turns out to be no sinecure in practice. The calculation consists of a “three-stage rocket”. Firstly, it is relevant how much commission the agent has earned annually by introducing customers or expanding existing customers. Second, a fairness adjustment may apply to the client fee, adjusting it upwards or downwards depending on the circumstances of the case. In this context, one could think of a contractually agreed non-compete clause that makes it impossible for the agent to develop competitive activities. The following factors can also cause an adjustment to the customer compensation: the duration of the benefit effected by the agent, the development of the customer base and whether or not the agent receives the commission accelerated. Finally, the customer compensation is capped at a fee which is equal to the average annual commission, calculated over the last five years after termination of the agency agreement. 

In practice, therefore, there are quite a few relevant factors that are important in determining whether the customer compensation is payable if an agency agreement ends. When the right to this exists, it then depends on the circumstances how high the customer compensation may be. It is therefore essential to weigh all the aforementioned factors before claiming the customer compensation at the end of the agency relationship. In practice, these factors are also important in determining whether agency is the right form of cooperation compared to, for example, franchising. 

mr. C. Damen – franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Go to damen@ludwigvandam.nl