TRADING AGENT NEGOTIATING POWER AND SEVERANCE PAY

  • Definition of “trade agent” under French Code of Commerce

If you sign an agency contract with a French national under French law, it does not necessarily mean that he is an agent following the regulatory law, consequently, at the time of termination of the contract, he may not be entitled to receive any severance indemnity. That, regardless of how you have legally qualified the relationship.

In fact, “the implementation of the agency bylaws does not depend neither on the will expressed by the parties in the contract, nor on the name given to their conventions, but on the conditions under which the activity is actually exercised” (Supreme Court, sentence n. 01-11923 / Dec 10th 2003).

 

Now, the necessary conditions to be a trading agent are fully described in art. L. 134-1, 1st paragraph, of the French Code of Commerce, which defines a commercial agent as:

“An agent who, as an independent profession, without being bound by a contract for the provision of services, is permanently appointed, to negotiate and, where appropriate, to conclude contracts for the sale, purchase, leasing or provision of services in name and on behalf of producers, industrial, traders or other trade agents.”

According to French law, the application of agency bylaws is, therefore, subject to the condition that the agent has permanently and independently the power to negotiate and, where appropriate, conclude sales contracts.

The power to conclude sales contracts is therefore a possibility, while the power of negotiation constitutes the mandatory characteristic of the agency contract.

 

 

  • Agents“Power to negotiate”

 

Furthermore, what is meant by “power to negotiate”?

This power consists in the ability given to the agent to negotiate prices and conditions of the sales with the customers, without being strictly bound to the contractual and tariff framework set by the Principal.

In other words, the agent must actively promote the order and not just introduce and show a product at a price that complies with the price list drawn up by the principal, without any power to grant discounts, payment extensions or delays, etc.

The power of negotiation is, therefore, the cornerstone to establish whether an intermediary can benefit from the status of agent or not.

 

  • Intermediary or agent. Differences and definition

 

The French jurisprudence, in fact, considers that the avowal of commercial agent rests only with the agent who has real power to negotiate contracts.

Consequently, where the judge finds the absence of a negotiation activity exercised by the agent, the judge is required to reject the enforcement of the commercial agency regime.

Thus, the Court of Cassation, (sentence n. 13-24.231 / Jan 20th 2015), denied the status of commercial agent to an intermediary who could not, “without renouncing his commission, grant discounts” and which had to respect the price and terms of sale set by the principal.

The Court in fact held that:“Mr. X … was devoid of any negotiating power” and that, consequently, he could not avail himself of the status of commercial agent.

Conclusion to which the same Court attained a few years earlier, ruling (sentence n. 10-14851 / Apr 27th 2011), in which: “Considering, on the other hand, that for own reasons, [the company Exan] had no permanent power to negotiate contracts in the name and on behalf of Cephalon, the Court of Appeals correctly inferred that the company Exan did not have the status of commercial agent”.

 

In another case, the Court of Appeals of Paris recognized the quality of agent to an agent who had no margin of negotiation on tariffs, but who nevertheless possessed the possibility of proposing to his own clients gifts, consisting of international congresses. The Court in fact held that, although the agent did not have any power to negotiate the price, the gifts in question, having an important financial value, were in any case a negotiation tool and marketing support, available to the same representative, and therefore the latter had the quality of commercial agent.

 

  • Right to severance pay

 

In light of the above, in the event of a dispute with a French agent for the payment of severance and indemnity, when the contract is governed by French Law, it is essential to first check whether, under the conditions set out in the contract, the aforementioned intermediary possessed the power of negotiation as understood above, failing which, as said, the same can not benefit from the status of agent and, consequently, the indemnities related to the termination of the agency contracts.

 

  • Agency with Italian Principals – clauses and exclusions

 

All said, becomes utmost important for Italian Principals. In fact, it often happens that, even when the relationship is governed by French law, the contract drawn up by the Italian Preponent contains clauses derived by the Italian agency contracts, in which the parties usually exclude any negotiating power in relation to the agent, providing, on the contrary, an express obligation for the same to adhere scrupulously to the prices and terms of sale set by the principal and an equally express prohibition to grant discounts, payment extensions, etc. …

These clauses, as mentioned, exclude for the French jurisprudence that the intermediary can be recognized as a commercial agent.

 

  • Severance Italian Law v/ French Law

 

Moreover, the severance indemnity provided for by the French law is much higher than that foreseen by the Italian legal system. In fact, according to art. 1751 of the Italian Civil Code, the maximum limit cannot exceed one year of commissions, to be calculated on the basis of the annual average salary collected by the agent in the last five years.

The French legal system does not provide for any limitation on the recognition of such compensation, with the consequence that, over the years, the Courts have tended to recognize to the agents an indemnity equal to two years of commissions, calculated on the average of the last three years, or even, in case of a long-term relationships, equal to even three years.

 

 

  • Lack of status of commercial agent – always the best strategy

 

 

For such reasons, where the conditions exist, the Italian Principal should plead the lack, on the part of his French opponent, of the status of commercial agent.