Classification of commercial agent contracts: an interpretive ruling of the CJEU on the duties of agents in favour of commercial agents

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Classification of commercial agent contracts: an interpretive ruling of the CJEU on the duties of agents in favour of commercial agents

This information was included in our most recent newsletter. In a much-anticipated judgment, the Court of Justice of the European Union (CJEU) clarified the concept of ‘negotiating’ power that entitles commercial agents to benefit from the status provided for in the Directive. We would like to discuss this ruling in more detail because it has a retroactive effect on other intermediary contracts.

1. The ruling in brief

On 4 June, 2020, the CJEU (Case C-828/18, Trendsetteuse SARL v. DCA SARL) delivered a very important judgment on the ‘negotiating’ power of intermediaries, a criterion governing the application of the protected status of commercial agent.

A commercial agent is a representative who has continuing authority to negotiate and enter into contracts in the name and on behalf of the principal.

In particular, the classification of a contract as a commercial agent contract entitles the agent, in the event of termination (excluding termination at his or her initiative or for serious misconduct on his or her part), to compensation often valued at two years’ commission.

The Court of Cassation has always adopted a narrow interpretation of the negotiation criterion, considering that, in order to be classified as a commercial agent and benefit from the aforementioned termination compensation, the agent must have the power to change the terms of the contract, especially pricing conditions. It was therefore in companies’ best interests to forbid their intermediary from negotiating the financial terms of the transaction to avoid this status.

In case C-828/18, the CJEU ruled that a commercial agent contract does not require the agent him or herself to have the power to negotiate the price of the goods he or she sells on behalf of the principal (pt. 28). In doing so, it put an end to the hitherto restrictive interpretation of the Court of Cassation.

The CJEU does not, however, define the concept of negotiation and states that its analysis is based on the ‘main tasks’ of the commercial agent, which consist of ‘bringing new customers to the principal and increasing transactions with existing customers’, through actions ‘likely to encourage completion of the sales transaction’.

For more details on this ruling, please refer to the article published on 24 June, 2020 on our website (‘News’ section).

2. Contractual impact of this ruling on current intermediation contracts

The CJEU ruling is likely to have a direct impact on intermediary contracts similar to commercial agent contracts, which have hitherto avoided this classification because of contractual provisions removing any opportunity for the agent to negotiate pricing conditions.

Therefore, depending on the actual conditions of performance of the intermediary contracts, they may be reclassified as commercial agent contracts. Should this occur, the principals may be required to pay termination compensation to the intermediary on the termination of the contract (excluding termination at the intermediary’s initiative or for serious misconduct on his or her part) in the cases provided for by law.

In particular, promotion contracts (contracts under which the promoter collects orders from customers, where appropriate, after asking them to sign the contract with no opportunity to change the terms, in particular financial) are especially affected by this risk of reclassification.

More generally, intermediation contracts that aim to ‘encourage completion of the sales transaction’, on a repeat basis, could easily be treated as commercial agent contracts according to the criteria set out by the European court.

This ruling has a retroactive effect: consequently, it applies to new contracts as well as those signed before 4 June, 2020.

An analysis of current intermediation contracts (business finder, broker, promoter, etc.) therefore seems necessary. Our staff are all here to assist you in this regard.

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