Terminating Dutch agency contracts (1): Rights and entitlements of the agentTuesday, 9 August 2016
Commercial agency is prone to conflict over termination fees. In the Netherlands, statute strictly regulates the rights and entitlements of the agent in the course of termination. What rights does the agent have under Dutch law?
Most agents (“handelsagenten“) know that, in case of termination of their commercial agency contract, they in principle have a right to goodwill. Especially in case they brought in new customers or expanded contracts with existing customers. But there is much more to be gained.
Rights and entitlements
From the perspective of a commercial agent, Dutch law may offer rights to commission or provision for the following categories of orders:
- Orders signed during agency, if the subsequent agreement was due to the agent’s intervention (Article 7:431 (1) (a) BW)
- Orders signed during agency, without the agent’s intervention, if the subsequent agreement was concluded with a customer brought in previously by that agent (Article 7:431(1)(b) BW)
- Orders signed during agency, without the agent’s intervention, in case the customer is located in one’s customer area or sales area (unless agreed explicitly that the agent has no exclusive rights in that area) (Article 7:431(1) c BW)
- Orders signed after agency, if teh order is mainly attributable to the agent’s efforts during the agency (Article 7:431 (2) (a) BW)
- Orders signed after agency, if the order was received before termination (Article 7:431(2)(b) BW)
As a commercial agent, one may also have rights to further compensation:
- Right to commission without any actual orders, when the agent was ready to fulfill his obligations and start selling in the designated area, but the principle refused to make use of this availability – or much less so than usual (Article 7:435(1) BW)
Upon termination of the agency contract, specific financial benefits come into play:
- Liquidated damages: In case the principal has terminated the contract prematurely, or without respecting the relevant notice period, he may have to compensate the agent over the time the agency contract should have lasted, given a regular notice period (Article 7:441 (1) BW).
- Full compensation: Instead of liquidated damages, the agent may also be able to claim full compensation (Article 7:441(3) BW)
- Goodwill: This is a compensation with a maximum of one year for having brought in new customers and/or expanding agreements with existing customers, provided that the principal after termination still has considerable advantages, to a reasonable extent (Article 7:442 (1) BW)
Please note that the abovementioned claims and compensations must be invoked within 1 year, otherwise the agent runs the risk that his claims have lapsed (Article 7:444 BW) or expired (Article 7:442(3) BW).
Even more legal protection
Apart from the above claims, Dutch law provides commercial agents with a relatively strong protection. A few rules which work in favour of the agent:
- Upon request, the principal is obliged to provide you with a signed copy of the content of the commercial agency agreement applicable at that time (Article 7:428 (3) BW).
- If the principal refuses orders, it does not necessarily mean that the agent no longer has a right to a commission. Dutch law assumes that an order has been accepted by the principal so that the committee will have to pay, unless he informs within a reasonable time that he refuses the order or makes a reservation (in principle, within one month) (Article 7:432(1) BW).
- Your liability as a commercial agent is legally restricted to the extent associated with concluded agreements or signed orders. You can simply not be held liable (Article 7:429 BW).
Under Dutch law, commercial agents should be careful to claim all available benefits – not just goodwill and outstanding orders. Please note the following:
- It often happens that a commercial agency agreement is not terminated lawfully. That opens up the prospect for a discussion on liability for (liquidated) damages. In another post we will provide tips on how to avoid being drawn into such a discussion.
- Our impression in practice is that many possible claims remain untouched. From the perspective of a commercial agent, that is a shame. One has build up a brand in one’s territory; worked hard; and then foregoes the right to compensation for these efforts.
- Finally, parties may be inert causing a possible claim to expire. Act swiftly and decisively.
Check out our other contributions on terminating agency under Dutch law
- Rights & entitlements of the commercial agent
- Rights & entitlements of the principal business
- How best to terminate commercial agency agreements?
- Damages in addition to goodwill
- Claiming goodwill for existing customers