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Commercial agency agreement (French contract law)

10 Mar 2012

Commercial agency agreements (and the activity of commercial agent) are strictly regulated in France. The agent enjoys considerable protection as a matter of law, and commercial agency agreements must be drafted with caution to protect both the interests of the agent and those of the principal. Most legal provisions regarding the status and protection of commercial agents are mandatory and may not be contracted out.

Who may be qualified as a commercial agent?

Pursuant to French law, a commercial agent is any person (whether a company or individual) who has the continuing authority to negotiate, and eventually to conclude, contracts for the sale or lease of goods or the provision of services, on behalf of a principal (that is, one or more manufacturers, suppliers, merchants or other commercial agents).

Registration with the registry of commercial agents

Commercial agents established and active in France must be registered with the registry of commercial agents held by the competent commercial court. Commercial agents established outside France are not obliged to register, provided that they do not have a permanent representation in France (that is, provided that they exercise their activities in France only on an occasional and temporary basis). Failure to register with the registry of commercial agents may be sanctioned by a fine up to €1 500.

Rights and obligations of the commercial agent

  • the agent has the right to carry on a commercial activity for its own account
  • the agent may not accept the commercial representation of a competing principal without first obtaining the consent of the principal whom it already represents
  • the agent must comply with the sale instructions and prices communicated by the principal; unless otherwise provided in the agency agreement, the commercial agent has the authority to conclude contracts on behalf of the principal, which will be binding on the principal
  • the agent may appoint sub-agents
  • the agent may be held liable in the event that the purchaser is insolvent, if the agent has failed to take basic precautions
  • the agent has a duty to disclose to the principal all information necessary for the performance of the agency agreement; conversely, the principal is also obliged to provide to the agent the information and documents necessary or useful for the performance, by the agent, of its obligations under the agency agreement, including to inform the agent in due time of any anticipated decrease in the volume of sales, of the principal’s acceptance, rejection or inability to perform the orders submitted by the agent, etc.

Non-compete

Any clause obliging the agent not to compete with the activities of the principal after the termination of the agency agreement must be in writing. The duration of such clause may not exceed two (2) years after the termination of the agency agreement. The obligation of non-compete must furthermore be limited to the geographic sector, the clientele and the products or services which were the subject matter of the agency agreement.

Remuneration

The commercial agent is entitled to remuneration, which must conform to the standards applied in the concerned industry sector and territory entrusted to the agent. Such remuneration may take the form of a commission, in which case (and unless otherwise agreed between the parties) the commission will be due:

  • for all transactions concluded during the term of the agency agreement, if such transactions were made as a result of the intervention of the agent. In addition, transactions with clients located in the territory or belonging to the category of clients entrusted to the agent also give rise to commission, regardless of whether they were initiated by the agent or concluded by the principal without the intervention of the agent;
  • for transactions concluded after the termination of the agency agreement, if such transactions were due mainly to the activity of the agent before the termination of the agreement, and were made within a reasonable period of time after its termination.

Specific rules are provided for by French law as regards, inter alia, the apportionment of commissions between a preceding and a new agent, entitlement to and payment of the commissions, etc.

Term and termination of the agency agreement

The agency agreement may have a fixed or indefinite term. If the agreement has an indefinite term, it may be terminated by either party subject to a prior notice of at least:

  • 1 month if the agreement is terminated during the first year
  • 2 months if the agreement is terminated during the second year
  • 3 months if the agreement is terminated during or after the third year

The above minimum termination notice periods also apply to agency agreements having a fixed term, if such agreements were continued after their normal termination date.

Assignment of the agency agreement

The agency agreement may not be assigned by the agent without the prior authorization of the principal. In the event that the agreement is assigned, the agent is no longer entitled to receive the compensation due by the principal on termination of contract.

Compensation for agent on termination of the agency agreement

In the event of early termination of the agency agreement, the agent is entitled to receive a compensation for the damage suffered as a result of such termination (which, if the agreement is of definite duration, is equal to the amount of commissions which the agent would have received until the normal termination date of the agreement). The agent’s right to obtain indemnity also applies in the event that the agreement is not renewed, in which case the agent should be indemnified for the loss of revenues. The agent loses however its right to indemnity if the agreement is terminated by the agent for reasons other than the agent’s age or illness, or by the principal for material breach or misconduct (“faute grave”) of the agent.

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