Compensation for clients in the agency contract.
The article 28 of the agency contract’s Law (Ley de Contrato de Agencia, “LCA”) establishes that “… when the agency contract extinguishes for either a fixed or indeterminate period of time, the agent which has provided new clients to the entrepreneur or that has increased noticeably the operations with the pre-existing clients, will have the right to perceive a compensation if his previous activity can continue to produce substantial advantages to the entrepreneur and results equitably appropriate due to the existence of limitation pacts of competence, for the lost fees or the other circumstances that concur…”
This right also exists in case of the contract being extinguished due to death or declaration of the agent’s death.
In terms of the payment amount of the compensation, the law establishes that the quantity cannot exceed, in any case, the average annual amount of the perceived remunerations by the agent along the previous five years or along the contract’s duration period, if this was lower.
This means that the Law provides that the agent gets a compensation if his previous activity can continue to produce substantial advantages to the entrepreneur.
The demanded requirements so that the agent can claim a compensation for clients are the following: (i) That new clients have been obtained for the entrepreneur, or that an increment of sales has been produced within the pre-existing clients (ii) That the agent’s activity can continue to generate benefits for the entrepreneur after the ending of the agency contract.
In other words, the entrepreneur will not be obligated to the payment of the compensation for clients if it proves that the ending of the agency relationship does not produce any benefits.
There is no clear criteria to quantify the amount of the compensation for clients. The agency contract’s law does not establish the quantity, since it sticks to fixing a maximum amount: the annual average quantity of the perceived remunerations by the agent along the previous five years or, during the contract’s duration period, if this was lower.
Article 28 of the LCA, can be applied through analogy to grant a distributor the compensation for clients planned for the agent.
However, remuneration like the agent perceives do not exist in a distribution contract, but trade margins do. Because of this, it used to be debated if using the gross margin criteria was the best to use as a ground for the compensation’s calculations ( it is to say, the difference between the acquisition price and the resale price ), or the net margin (percentage of benefit that is left to the distributor once the expenses and taxes have been deducted), however the Supreme Court’s judgement of the 19th of May 2017, clarifies this matter, concluding that the net profit’s criteria is the one that should be applied.
Partner and lawyer in charge of the Litigation area at Devesa & Calvo Abogados