Can a Non-EU Company Avoid the French Agent Indemnity?

The short answer: a foreign choice of law does not defeat the indemnity

A commercial agency contract is a favourite candidate for a foreign choice-of-law clause. A principal established outside the European Union — in the United States, Switzerland, the United Kingdom or elsewhere — often stipulates that the contract is governed by the law of its own seat, precisely because that law does not confer the generous termination indemnity that French and EU law give to commercial agents. The intention is transparent: to contract out of the indemnity in advance.

Where the agent carries on its activity in France, or elsewhere in the European Union, this strategy fails. The provisions of the European Directive of 1986 that protect the agent on termination — the indemnity or compensation, and the notice — are overriding mandatory rules. They must be applied to an international agency contract whenever the situation has a close link with the European Union, and in particular whenever the agent performs its activity in the territory of a Member State, whatever law the parties chose to govern the contract. A Californian-law clause does not spare a principal the French indemnity if the agent was selling in France. The rest of this article explains the reasoning behind that rule, the precise test the courts apply, and the limited room a foreign company genuinely has to plan around it.

Ingmar: the indemnity as an overriding mandatory rule

The governing authority is the judgment of the Court of Justice in Ingmar (9 November 2000, case C-381/98). The facts were the archetype of the problem: a principal established in California appointed an agent that carried on its activity in the United Kingdom, and the contract stipulated that it was governed by Californian law, which knows no equivalent of the Directive's termination indemnity. When the relationship ended and the agent claimed the indemnity, the principal relied on the Californian-law clause to resist it.

The Court held that Articles 17 and 18 of the Directive, which guarantee the agent an indemnity or compensation on termination, must be applied where the agent carried on its activity in a Member State, even though the contract was governed by the law of a non-member country which the parties had chosen. The protective provisions could not be displaced by the simple expedient of a foreign choice of law. Their purpose — to protect the commercial agent, and to secure freedom of establishment and undistorted competition within the internal market — would be defeated if a principal could escape them merely by choosing the law of a third country. In the language of private international law, they are overriding mandatory provisions (lois de police): rules that apply irrespective of the law otherwise governing the contract.

The decisive test: where the agent carries on its activity

The lesson of Ingmar is that the connecting factor is the place where the agent operates, not the seat of the principal and not the label on the contract. That point cuts both ways, and the Court drew the second edge of it in Agro (16 February 2017, case C-507/15). There the Court held that where the agent carries on its activities outside the European Union, the mere fact that the principal is established in a Member State does not amount to a sufficiently close link with the Union for the purposes of applying the Directive. A European principal cannot, by its own establishment in the EU, drag the Directive's protection around an agent who is in truth operating in a third country.

Put the two decisions together and the rule is symmetrical. The Directive's termination protection follows the agent's field of activity: it applies where the agent works in the EU, whoever the principal is and whatever law is chosen; and it does not apply, of its own force, where the agent works outside the EU, even if the principal sits inside it. For a foreign company appointing an agent to sell in France, the practical consequence is stark — the location of the sales effort, not the drafting of the contract, decides whether the indemnity is owed.

Even under French law, the indemnity cannot be bargained away

It is worth pausing on why the temptation to escape the indemnity through foreign law is so strong: it is because the entitlement cannot be escaped from within French law either. The regime of Article L 134-12 is a matter of public policy (ordre public). The parties may agree indemnities that add to the statutory one — a contractual top-up cumulates with the legal indemnity — but any clause providing for a different, lesser indemnification in its place is of no effect (non avenue). A principal cannot, by a clause, substitute a modest lump sum for the statutory compensation; the agent retains the right to be compensated for the whole of the harm caused by the termination.

Because the compensation repairs a loss that is only measurable at the moment of cessation, the parties also cannot fix its amount as a pre-agreed flat figure that would cap the agent's recovery. Methods of calculation settled in advance are admissible, but only so long as they allow the agent to obtain an indemnity that covers the whole of the loss suffered; a formula that would leave the agent short of full reparation is treated as an impermissible exclusion rather than a permissible modality. Seen against that domestic backdrop, the foreign choice-of-law clause is simply an attempt to achieve indirectly, through private international law, what French substantive law will not allow directly — and where the agent operates in the EU, it fails for the same policy reason.

Between Member States: the Unamar refinement

A related question arises where both the chosen law and the forum are within the European Union, so that the Directive has been transposed on both sides. Here the Court's judgment in Unamar (17 October 2013, case C-184/12) applies. It held that where the parties to an agency contract have chosen the law of a Member State that satisfies the minimum protection required by the Directive, a court seised in another Member State may set that chosen law aside in favour of its own law, on the ground that the rules governing commercial agents are mandatory in its legal order, only if that court finds in a detailed and reasoned way that, in transposing the Directive, the legislature of the forum State treated its rules as going beyond the minimum the Directive prescribes — having regard to the nature and purpose of those mandatory provisions. The analysis has since been carried over to the Rome I Regulation (Regulation 593/2008).

The practical significance of Unamar is narrower than Ingmar. Between Member States, a validly chosen Member-State law that meets the Directive's floor will normally be respected; the forum can override it in favour of its own more protective regime only where it can show, with reasons, that its own transposition deliberately went beyond the Directive's minimum. This is the mechanism by which a strongly protective jurisdiction — France being the paradigm, with its uncapped compensation customarily worth around two years' commission — can insist on its own regime even against a less generous but Directive-compliant chosen law.

The mirror image: when the agent operates outside the EU

Seen from the French courts, the same principle produces a clear rule for the converse case. Where the agent carries on its activity outside the European Union, the mandatory provisions of the Directive as transposed into French law do not apply of their own force, because in that situation they belong only to internal French public policy (ordre public interne) and are not overriding mandatory rules in the international sense. The French courts have applied this repeatedly (Cass. com., 21 October 2015, no. 14-20.924; Cass. com., 5 January 2016, no. 14-10.628; CA Paris, 6 May 2014, no. 12/21230; and more recently CCIP-CA, 4 July 2023, no. 20/18196).

There are two important qualifications. First, the French statute does apply, even to an agent operating outside the EU, where the parties have chosen French law to govern the contract (Cass. com., 11 January 2023, no. 21-18.683). A French-law clause brings the indemnity with it wherever the agent works. Second, even where the agent is established and operates outside the EU, the parties may, by an express clause, agree to confer a right to the indemnity on the agent, under the principle of autonomy of the will in private international law (Cass. com., 20 March 2024, no. 22-22.450). The indemnity can therefore be switched on by agreement in situations where it would not apply automatically.

What a non-EU company cannot do — and what it can

Against that framework, the ways a foreign principal might hope to avoid the indemnity fall into two groups: those that do not work, and the narrow structuring that genuinely does.

What does not work. Choosing a non-EU governing law does not defeat the indemnity where the agent operates in the EU (Ingmar). Nor does relabelling the relationship. The qualification of a contract as a commercial agency is itself a matter of public policy: it depends neither on the will the parties expressed nor on the name they gave their agreement, but on the conditions in which the activity is actually carried on (Cass. com., 10 December 2003, no. 01-11.923; Cass. com., 21 June 2016, no. 14-26.938; Cass. com., 19 October 2022, no. 21-21.378). Calling the agent a "consultant", a "distributor", or a "service provider" will not help if, in substance, the person negotiates sales in the principal's name on a permanent basis. A clause purporting simply to waive the indemnity in advance is equally ineffective, the regime being mandatory in the agent's favour.

The substance-over-form rule is worth dwelling on, because it is where foreign principals most often come to grief. The courts have applied it, for instance, to unmask a franchise dressed up as an agency, and they will equally refuse to accept an agency dressed up as something else. What matters is whether the intermediary, on a continuing basis, negotiates — and where agreed concludes — sales or purchases in the name and on behalf of the principal. If it does, it is a commercial agent, with the indemnity that follows, whatever the contract calls it and whatever the parties declared they intended. This makes the drafting-based avoidance strategies not merely weak but counter-productive, because a contract elaborately structured to look like something other than an agency, while functioning in every practical respect as one, invites exactly the requalification the principal feared, together with the credibility cost of having tried to disguise it.

What can be done, lawfully. The one durable way to be outside the indemnity is for the sales activity genuinely to be conducted outside the European Union, so that the connecting factor identified in Ingmar and Agro is simply absent — a structural fact, not a drafting device. Short of that, a foreign principal appointing an EU-based agent should price the indemnity into the commercial bargain rather than pretend it away: it is a foreseeable cost of selling through an agent in the EU. Where the agent operates outside the EU and the parties do not want the indemnity, the contract should avoid both a French/EU governing-law clause and any express indemnity undertaking, since either can bring the entitlement into being. And a principal that prefers a different structure altogether — a distributor buying and reselling in its own name, or a subsidiary — should choose it at the outset, understanding that each carries its own consequences.

Does arbitration or a foreign forum help?

Principals sometimes hope that an arbitration clause, or a clause conferring jurisdiction on a foreign court, will keep the dispute away from the French courts and the mandatory indemnity with it. This is unreliable. The overriding mandatory character recognised in Ingmar is precisely what makes the indemnity difficult to escape through forum selection: a European court asked to enforce or recognise an award or judgment that disregarded the agent's mandatory protection, where the agent operated in the EU, may treat that protection as part of its public policy. Arbitral tribunals, for their part, very frequently apply the law of the place where the agency is performed. Choosing arbitration or a foreign forum may change who decides the dispute; it does not reliably change the result on the indemnity where the agent worked in France or the EU.

None of this makes arbitration or a foreign-jurisdiction clause pointless — such clauses are valid and are routinely enforced in international commerce, and there are good reasons to prefer a neutral forum. The point is narrower: these clauses should be chosen for the procedural advantages they genuinely offer, not in the belief that they neutralise the agent's mandatory indemnity. A principal that appoints an agent to sell in France and then relies on a Swiss arbitration clause and a Swiss-law contract to avoid the indemnity may still find, at the enforcement stage in France, that the protection reasserts itself. The mandatory rule is designed to be resistant to exactly this kind of circumvention.

Frequently asked questions

Can a US company avoid the French agent indemnity by choosing US law?

No, where the agent carries on its activity in France or the EU. The Directive's termination indemnity is an overriding mandatory rule that applies whatever law the parties chose (Court of Justice, Ingmar, C-381/98).

What actually decides whether the indemnity applies?

The place where the agent carries on its activity. If that is in the EU, the indemnity applies whoever the principal is; if it is outside the EU, the indemnity does not apply of its own force, even if the principal is established in a Member State (Agro, C-507/15).

Can the indemnity be waived in the contract?

No. The regime is mandatory in the agent's favour and a clause simply excluding the indemnity in advance is ineffective where the agent operates in the EU. Nor can the parties escape it by giving the contract a different name — qualification depends on how the activity is actually carried on.

What if the agent operates outside the EU?

Then the French indemnity does not apply automatically — but it does apply if the parties chose French law (Cass. com., 11 January 2023), and the parties may also grant an indemnity by an express clause (Cass. com., 20 March 2024).

Does an arbitration clause help avoid it?

Not reliably. The indemnity's overriding mandatory character means a European court may treat it as public policy where the agent operated in the EU, and tribunals often apply the law of the place of performance. Forum choice changes the decision-maker, not usually the outcome.

How much is the indemnity worth?

Under French law it is customarily assessed at around two years' gross commission, and it is not capped — which is precisely why the temptation to contract out of it is so strong, and so often futile.

Key takeaways

How our French lawyers help non-EU principals

This article is for general information only. It does not constitute legal advice. Cross-border agency and choice-of-law questions are highly fact-specific. Contact our French lawyers for qualified advice before appointing an agent or contesting an indemnity claim.