Is it possible to waive the compensation for clients in the agency contract?

Do you promote, on an ongoing basis, for remuneration, acts of trade on behalf of others? Do you act as an independent intermediary and without assuming the risk of such commercial operations?

Then it’s very likely that you’re a commercial agent. Whatever the name of the contract that governs your relationship with the other entrepreneur may be. If this is your activity, agency law and consequently the well-known indemnity for clientele applies to you.

Have you signed a waiver of compensation in your contract after the termination of the business, and do you think that this waiver prevents you from making a claim? Then you should know that the waiver you have signed is null and void. And if your business relationship has ended, you are entitled to compensation. Even if your contract says something else.

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What is the indemnity for clientele?

Compensation for customers is regulated in Article 28, Law 12/1992, May 27, on Agency Contract Law (ACL).

The ACL is a transposition of Council Directive 86/653/EEC of 18 December 1986. The purpose of the Directive is to coordinate the rights of Member States as regards to self-employed commercial agents. Among other issues, it makes special mention of the level of protection of commercial agents in their relations with their principals.

Among the rights granted to the agent, those set out in Article 17 are particularly noteworthy, after the termination of the contract. One of these rights is established in paragraph 2, which regulates the so-called indemnity or compensation for customers.

These articles set out measures to ensure that the commercial agent is entitled to compensation provided that:

• He/She would have brought new clients to the entrepreneur or would have significantly developed the operations with the existing ones. Provided that such activity can still bring substantial advantage to the entrepreneur.
• That the payment of such compensation should be equitable. Considering the circumstances, in particular commissions, lost by the agent, and resulting from transactions with such clients. In this regard, a non-competition clause may or may not be included.

It also indicates that the amount of the compensation may not exceed the annual average of the commissions generated. It is calculated by taking the last five years or, if the duration is shorter, the annual average of the duration.

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Limits to the autonomy of will in contracts

Law, morality and public order, operate as limits to the autonomy of the will of contracts. But are there more limits?

The agent may claim damages

In addition to compensation for clients, the agent may claim damages (art. 29 LCA). Such a claim may be made provided that:

1. we’re dealing with an indefinite contract and
2. it has not been possible to amortize the expenses incurred for the execution of the contract advised by the employer.

The deadline for claiming any of these indemnities is one year.

On the contrary, there will be no right to compensation, when (art. 30 of the LCA):

• The principal terminates the contract for a breach attributable to the commercial agent who justifies the termination without notice;
• When the commercial agent has terminated the contract. Unless termination is justified, in circumstances attributable to the principal;
• Where, after agreement with the principal, the commercial agent transfers to a third party the rights and obligations of which he is the owner.

Prohibition of agreement to waive the right to compensation for clients

It is common practice for companies employing agents to include an obligation to waive these allowances. It is equally common to call agency contracts under other nomenclatures, to avoid the application of agency´s law.

Thus, the methods used by employers to avoid compensation for clients are extremely varied. In addition to the aforementioned inclusion of waivers of compensation and the signing of membership contracts. We have contracts for the provision of services, marketing, promotion, representation, commission, etc. that disguise an agency relationship. What they all have in common is the prevalence of the entrepreneur over the agent and the latter’s inability to negotiate anything.

The good news is that these strategies rarely succeed in court. If you dare to sue and are well advised.

Why, would you ask?

Because since the ACL came into force the jurisprudential doctrine is peaceful. If the characteristics set out at the beginning of the article are present, we are dealing with an agency relationship. Whatever the title of the contract. And if we are dealing with an agency relationship, the waiver of the right to compensation for clients is null and void.

The nullity of the waiver of compensation arises from Article 19 of the Directive and Article 3.1. of the LCA. That article states that the provisions of the law are mandatory, unless expressly provided otherwise.

On the basis of this mandatory nature, the jurisprudence considers the contractual agreements to waive compensation to be null and void. And those agreements “to the detriment of the agent” are also prohibited. That is to say, those in which a lower indemnity than the one that legally corresponds has been agreed in advance. In conclusion, and as we began this section, the indemnity for clients cannot be disposed by the parties.

Supreme Court judgement 582/2010 of 8 October

In the words of the Supreme Court (Civil Section 1) Judgment No. 582/2010 of 8 October. RJ 2010\7448:

“2^nd – Among the rights recognized by this Directive to the agent are those set out in Article 17 for when the contract ends (paragraph 1), one of which is to be compensated under the conditions and terms set out in paragraph 2, which regulates the so-called indemnity or compensation for clients.

3^rd – The special importance of this right to compensation for customers as a manifestation of this “level of protection of commercial agents in their relations with their principals” is confirmed in Article 19 of the Directive by a rule whose formula is unequivocally prohibitive: “The parties may not agree, before the expiry of the contract, on conditions other than those laid down in Articles 17 and 18 to the detriment of the commercial agent.”

4^th – Although no article of the Spanish ACL contains the same or similar prohibitive formula, the fact is that its article 3.1 does establish the mandatory nature of its precepts “unless otherwise provided for”.

5^th – Based precisely on this imperative character, the jurisprudence of this Chamber has considered the contractual agreements of prior waiver of indemnity or compensation for clients to be null and void (SSTS 27-1-03 and 7-4-03).

9^th – The prohibition therefore extends to any advance covenant that limits the right of the agent to obtain, once the contract is terminated and in the event of a conflict with his employer, an indemnity that reaches the amount provided for in article 28 LCA or, in other words, that excludes in advance the fair trial provided for in that article”.

Conclusion

No doubt this Agency Act business is a long story. There are many doctrinal studies on it. In future publications, we hope to deal more thoroughly with the application of the Agency Act to contracts of a different nature. Likewise, we will try to address the jurisprudential requirements when dealing with and calculating compensation per client.

If this article has been of interest, we also suggest you to read the following article published on our website:

Differences between an agency agreement and a distribution agreement.