The Contractual Provision on Compensation for Customers Payable to Commercial Agents

3 May 2023 - Michael Fries

When a contract is terminated, sales representatives are usually entitled to compensation for the customers that they have acquired. This follows from the provisions of the Agency Contract Law (the “Law”).

Michael Fries Abogado & Rechtsanwalt +34 91 319 96 86

The provisions of this Law are, with few exceptions, mandatory. Thus, a company cannot agree with its commercial agents on contractual arrangements that deviate from the letter of the law. However, since the Law is a “protective law” in the sense that it seeks to protect agents, it is possible to deviate from it in favour of the latter’s interests.

This favourable interpretation also applies to compensation for acquired customers. Therefore, a contractual clause that excludes the payment of compensation to commercial agents for the customers that they acquired is null and void. Even compensation for customers that is lower than the maximum amount stipulated by law (the average annual commission calculated over the last 5 years of the contract) would be considered null and void and therefore unenforceable by the Spanish courts.

However, the question of whether a contractual clause actually deviates from mandatory statutory provisions to the detriment of the agent needs to be analysed on a case-by-case basis.

Thus, in a recent case brought by this firm before the Provincial Court of Alicante, the main issue at stake was the validity of the following contractual clause on compensation for customers: The contracting parties agree that upon termination of the contractual relationship, the commercial agent is entitled to compensation equal to the total commission income earned during the 6 months prior to termination of the contract.

The wording of the provision shows that it potentially deviates from the mandatory statutory provision to the detriment of the commercial agent, since the latter provides for an average annual remuneration calculated on the basis of the last five years of the contract. On this basis, the Court of First Instance declared the contractual clause relied on by the commercial agent to be null and void, awarding compensation for customers on the basis of the maximum statutory amount (average annual remuneration).

In fact, however, the amount payable under the Law was lower than that calculated by applying the contractual clause that had been declared null and void. This was because the agent’s commission income in the six months prior to the termination of the contract had been disproportionately high. Therefore, the Provincial Court of Alicante declared in its appeal judgment that the protection of the commercial agent intended with this regulation took precedence, which meant that the contractual clause in question was valid and enforceable, since its specific application led to a more favourable result for the commercial agent.