In this chapter, we will look at some aspects that should be taken into account, as well as at matters that can be included in an agency agreement. First, we will address the question why a written agency agreement should be entered into.

Why a written agency agreement?

An agency agreement does not necessarily have to be concluded in writing. An oral agreement is also valid. However, under the Agency Law, each party is obliged, upon request, to provide the other party with a signed document reflecting the agreements made.

Even if no such request is made, it is still advisable to record the arrangements in advance in a written agency agreement. The Agency Law regulates a lot, but not everything, that may be of interest to the parties. For example, the law does not specify what marketing activities an agent must perform. It is advisable to make and put down in writing this type of practical arrangements yourself. It will create clarity in advance and provides a party with a clear arrangement to refer to, should the other party fail to fulfil its obligations. 

Moreover, making arrangements regarding certain matters is important for the principal. After all, if no individual arrangements are made, the provisions of the Agency Law will have to be relied on. The Agency Law has been drafted from the point of view of the protection of the agent, which means that many provisions of the Agency Law work out in favour of the agent. However, on certain points the Agency Law does leave room for the parties to make arrangements that are more favourable to the principal, but it is essential that those arrangements are actually made. Such arrangements – which derogate from the statutory regime – are documented in the agency agreement.

Below, a number of the matters which may be derogated from in favour of the principal of the Agency Law, will be discussed. 

Who are the parties?

It is important to establish who the contracting party is when the agency agreement is concluded. The commercial agent is an independent entrepreneur and will therefore have to register as such with the Chamber of Commerce. In the case of agency, the most common business forms for the commercial agent are the one-man business or the private limited company.

In a one-man business, the commercial agent operates as a natural person. This means that (like other creditors) the principal may have recourse to the natural person's entire assets in the event of the non-performance of certain obligations. In that context, a party should be aware, as a principal, that a commercial agent/natural person may transfer his business to a private limited company in the course of the cooperation. If the principal consents to this, tacitly or otherwise, the contracting party may undergo a change of status (contract takeover). This can lead to a situation where, without the principal being aware of this, a shell corporation may eventually turn out to be the contracting party instead of the original natural person. However, all this may be overcome relatively easily by including a so-called joint and several liability provision in the agency agreement. 

If a private limited company is the contracting party, then in principle only this private limited company with separate assets is bound towards the principal for the performance of the arrangements that have been made. If the principal also wishes to bind the underlying natural person/shareholder, this should be laid down in a contract. 

Territory, customer base and exclusivity

In most agency agreements, the commercial agent is assigned his own territory and/or customer base. This may be done on an exclusive basis, but this is not strictly necessary. It is important to clearly set out the arrangements that are made about the geographic scope of the territory/customer group on the one hand and about exclusivity on the other. It is furthermore relevant to set down in writing whether (and for what reason(s)) a territory and/or client base might be sized down or adjusted at any later date. 

In the case of an exclusive territory or client base, it is wise to clearly lay down in a contract:

(i) whether the principal is allowed to conclude contracts directly (without interference from the agent) with all or certain customers from the exclusive territory or customer base, as the case may be;

(ii) whether or not the agent is entitled to a commission in the event of such a directly concluded contract.

If the agent is allocated a particular territory, but no agreements are made regarding the exclusive rights of the agent in this territory, the agent will be deemed to have the exclusive rights. In that case, the Agency Law states that the agent is entitled to a commission on all contracts concluded in his exclusive territory/with his exclusive client base during the term of the agency agreement, regardless of whether those contracts were concluded through his intermediary[1]. This statutory regime is of supplementary law. It may therefore be derogated from by contract. 

Independence

A commercial agent operates a business for his own risk and account and registers with the Chamber of Commerce as a business. Almost every agency agreement contains all kinds of provisions emphasizing this independence. This independence is important for both the agent and the principal. After all, if the relationship between the principal and the agent is regarded as an employment relationship, or a fictitious employment relationship, this may have far-reaching consequences, financially and otherwise.

Intellectual property rights

In his intermediary activities, the commercial agent will use the principal's name and/or logo, for he will as a rule sell the products or services under the principal's brand name. Concrete arrangements may be made about the use of the principal's intellectual property rights. For example, it may be advisable to prohibit the commercial agent from registering all or parts of the principal's intellectual property rights in his own name.

Range of products and target

As a rule, the commercial agent sells a specific product or a range of products or specific services. It is important to clearly set out in the agency agreement for which products and/or services the agent may act as an intermediary for the principal. Rules may also be included on any future products and/or services to be developed by the principal. In that context, a provision might for example be included that the agent is granted a first right to start acting as an intermediary for those products and/or services in his territory and/or to the assigned customer base. A provision may also be included that an agent is obliged to include certain newly-to-be-developed products in his range.

Often, the commercial agent is not allowed to act as an intermediary for competing products and/or services within the territory or within the assigned customer base. This prohibition should be clearly stipulated in the agency agreement. 

Especially in the case of exclusive territories and/or agency agreements entered into for a longer definite period, it is customary that the commercial agent has to meet a target, or annual target. This target may be structured in various ways, for example as a target in numbers per product or for the entire product range, or a turnover-based target (per product or total turnover). If the commercial agent does not meet the agreed target, various sanctions may be imposed. Frequently occurring sanctions are the full or partial withdrawal of an agreed exclusivity or the right to terminate the agency agreement. It is important to clearly set down the consequences of the failure to meet a target in the agency agreement.

Commission, statement of commissions and remuneration

The 'wages' received by the commercial agent are also referred to as commission. In principle, the commercial agent is entitled to a commission for agreements concluded during the term of the agency agreement[2]:

1. through his intermediary;
2. with a party previously introduced by him, and/or
3. with a party that belongs to the client base or that is established in the territory exclusively assigned to the commercial agent.

The parties may derogate from this rule by contract.  

In certain cases, the agent is also entitled to a commission on agreements concluded after the agency agreement has expired[3]. This right arises:

1. if the agreement is mainly the result of work carried out by the agent during the term of the agency agreement and was concluded within a reasonable period of time after the termination of the agency agreement; and/or
2. if the agent or principal received an order from a third party prior to the termination of the agency agreement and the contract was concluded further thereto after the termination of the agency agreement.

What exactly is to be understood by a reasonable period of time as referred to in (1) depends on the circumstances of the case and will vary according to the situation. 

These rules regarding a commission to be received on agreements concluded after the expiry of the agency agreement, are of mandatory law and may not be derogated from. 

Of great importance to the principal is the fact that the agency agreement should stipulate that the commission will not be due until the customer has paid the principal for the product or service, for the law explicitly states that such a stipulation must be made.[4]

The law states that at the end of each month, the principal must provide the commercial agent with a written statement of the commission due for that month. However, it may be agreed in writing that this statement is provided every two or three months. Many principals opt for this, partly from the point of view of reducing administrative burdens.

The Agency Law entitles the agent to payment of a remuneration in the event that the agent is prepared to fulfil, or has fulfilled, his obligations under the agency agreement, but the principal has not made use of those services, or has made less use of them than the agent could normally expect.[5] This right to remuneration may be contractually excluded.

Goodwill indemnity

In principle, upon termination of the agency agreement, the commercial agent is entitled to payment of goodwill indemnity (article 442 of Book 7 of the Dutch Civil Code). For the commercial agent to be entitled to claiming payment of goodwill indemnity, it is inter alia required that the commercial agent has introduced new customers or has substantially extended the agreements with existing customers, and that these agreements still provide benefits to the principal. It is furthermore required that payment of this compensation is fair, taking into account all the circumstances of the case. 

The amount of the compensation to be paid by the principal to the commercial agent is capped. The amount shall never exceed that of one year's remuneration, calculated according to the average of the last five years. If the agency agreement has lasted less than five years, the average of the entire duration of the agency agreement is used in the calculation.

Determining the goodwill indemnity occurs in three stages:

1. in the first stage, the benefits that transactions with customers introduced by the commercial agent bring to the principal must be quantified.
2. in the second stage, it must be assessed whether there are grounds for adjusting the amount determined in stage 1 in the light of all the circumstances of the case, in particular in view of the commission lost by the commercial agent. This fairness principle may result in both an increase and a decrease of the amount determined in stage 1.
3. lastly, the third stage assesses whether the amount resulting from the two previous stages does not exceed the 1-year remuneration, calculated according to the average of the last 5 years (or the entire duration if the agency agreement lasted less than 5 years). The goodwill indemnity is capped at this amount (average annual commission).

In stage 1, the principal's benefit is determined based on the gross commission earned by the commercial agent in the last 12 months in relation to new and intensified existing customers. This amount is subsequently adjusted in stage 2 (the fairness adjustment) by factors relating to (a) the expected duration of the benefit, (b) the development of the customer base and (c) the accelerated receipt of commission income by the agent receiving a lump sum payment. Stage 3 merely examines whether the amount calculated in stages 1 and 2 does not exceed the maximum amount.

It is furthermore important to mention that the agent must notify the principal no later than 1 year after the termination of the agency agreement that payment of goodwill indemnity is demanded. If he fails to do so, the claim will become time-barred. No provisions to the contrary may be agreed in the agency agreement (mandatory law).

Non-compete clause and non-solicitation clause

In many cases, it is not recommended in the agency relationship that the commercial agent carries out competing activities (i) during the term of the agency agreement and (ii) for a certain period of time after its expiry. A non-compete clause is therefore as a rule included for both the term of the agency agreement and for a period following its expiry. The non-compete clause that applies after the expiry or termination of the agency agreement is also called a post-contractual non-compete clause.

The post-contractual non-compete clause is subject to a number of legal requirements. For example, the clause may not cover a period longer than two years after the expiry of the agency agreement. Furthermore, the clause must be put down in writing. It is also required that the clause relates to the type of goods and/or services the commercial agent represented. In that respect, the commercial agent should not be restricted beyond the territory entrusted to him and the customer base assigned to him.

Should no post-contractual non-compete clause have been agreed or should the post-contractual non-compete clause fail to meet the aforementioned requirements, this does not mean that the commercial agent will in all cases be free to enter into competition with the principal after the agency agreement expires. Under certain circumstances this may constitute an unlawful act on the part of the commercial agent. Whether or not an unlawful act is committed will depend on the way in which the commercial agent engages in competition using information that he obtained in the period he was active as a commercial agent for the principal. 

Unlike the post-contractual non-compete clause, a non-solicitation clause is not subject to any validity requirements under the law. However, it is advisable to put this clause in writing as well, in order to prevent any disputes afterwards. 

Whether or not a post-contractual non-compete clause is agreed may affect the amount of the goodwill fee to be paid by the principal.

Penalty clause 

A penalty clause is indispensable in almost every agency agreement. The purpose of a penalty clause is twofold. By imposing a penalty on a violation of certain provisions which are crucial to the principal, a threshold is created. The risk of forfeiting a penalty may deter a commercial agent from committing such a violation.

Furthermore, in certain cases, it is very difficult to demonstrate that and to what amount damages have been suffered as a result of certain violations,  such as  a breach of a non-solicitation clause or a confidentiality clause. What is the damage suffered by the principal if a customer indicates that he will cease trading with the principal? What is the damage suffered if confidential information is shared with third parties? A penalty clause will allow you to claim (at lease) the penalty amount. It is important for a principal to carefully consider which provisions, if violated, will lead to the imposition of a penalty. Regard should also be taken to the fact that a court of law may always reduce the amount of a contractual penalty. 

Duration and termination 

It is up to the parties to determine the duration of the agency agreement. It is both possible to enter into an agency agreement for a definite period and for an indefinite period.

As for agreeing on a notice period, the parties have less freedom. They are bound by the statutory terms set out in article 437 of Book 7 of the Dutch Civil Code, which states that in the first year of the agency agreement, the notice period may not be shorter than 1 month. In the second year of the agency agreement, the notice period may not be shorter than 2 months. From 3 years and onwards, the notice period must be at least 3 months. 

If the parties do not agree on a notice period, the following notice periods will apply by law: 4 months in the first 3 years of the agreement, 5 months for an agreement lasting between 3 and 6 years and 6 months for an agreement with a term of 6 years or more. These longer notice periods therefore represent an argument in favour of including a clause governing the notice period in the agency agreement.

It should be borne in mind that, when terminating an agency agreement, notice must always be given with effect from the end of a calendar month.

Delcredere clause

The commercial agent is not a party to the contract concluded between the principal and the customer. The customer is obliged to perform the obligations under the agreement towards the principal, not the agent. 

The law does however provide the possibility in article 429 of Book 7 of the Dutch Civil Code to make the agent responsible towards the principal for the performance, or timely performance, of an agreement negotiated by the agent. In practice, such an arrangement specifically means that the agent will become liable, or jointly liable, for the customer's payment obligation. The rationale behind such a clause is that in some cases the agent is better equipped to assess the creditworthiness of customers, or potential customers.

A clause that puts all or part of liability on the agent is called a delcredere clause. A delcredere clause must be agreed upon in writing. In such cases, the agent is liable only for the customer's 'solvency' (the payment obligation), the liability is limited to the agreed wages and the agent must have played an active role in negotiating the agreement.

General 

Drafting an agency agreement requires specialist legal knowledge. Obviously, the basis being formed by a proper standard contract will help, but there are many manifestations of agency and almost every agency agreement does have some characteristics specific to the particular partnership. The difference between a mediocre contract, a good contract or a very good contract is almost always in the details. Those details are often difficult for the non-legal expert to discern, and as a rule the quality of a contract really becomes apparent only at the time when a discussion or, eventually, a dispute, arises. After all, that is when the contract will be consulted. A good and transparent contract will furthermore prevent disputes. The clearer the agreements, the less likely a discussion will escalate into a dispute or even court proceedings. 

[1] Article 431 (1) (c) of Book 7 of the Dutch Civil Code.

[2] Article 431 (1) of Book 7 of the Dutch Civil Code.

[3] Article 431 (2) of Book 7 of the Dutch Civil Code

[4] Article 432 (2) of Book 7 of the Dutch Civil Code

[5] Article 435 of Book 7 of the Dutch Civil Code