Validity of Sales Target Clauses in Agency Contracts in Spain

2 October 2023 - Vanessa Guzek

When agreeing on sales target clauses in a commercial agency contract, a commercial agent undertakes to achieve a contractually agreed level of sales within a fixed period of time.

Usually, principals and agents also agree that failure to achieve a contractually agreed turnover objective amounts to a material breach of a contractual duty on the agent’s part, thus giving the principal the right to terminate the contract. A significant legal consequence of missing a sales target for the agent can be the loss of their entitlement to compensation for the new customers brought into the company or increased business with existing customers (“customer-based compensation”) as well as to damages.

According to Spanish case law, the validity of an agreement on sales targets with an associated right of termination in addition to the exclusion of customer-based compensation and damages is subject to the following conditions, depends on whether the following conditions have been met:

  • Sales targets must be reasonable, appropriate, not unattainable, contractually fixed for specific years and updated annually.
  • The contract must clearly provide that the sales targets are binding minimum targets and that the fulfilment of this obligation by the commercial agent is of material importance.
  • The breach of the targets must be “material”. For this purpose, courts usually consider the extent to which sales targets have been missed (measured as a percentage) and whether this has occurred repeatedly.

Whether these conditions have been met must be decided on a case-by-case basis. The failure to achieve targets may depend on a variety of factors for which the commercial agent is not responsible, such as the quality of the goods, damage to the brand caused by the principal’s own actions or behaviour or the pricing policy set by the company.

One interesting case is a judgment of 8 March 2021 of the Barcelona Audiencia Provincial (court of appeal for commercial matters). In this decision, the court allowed the commercial agent’s appeal claiming customer-based compensation and damages, even though the agent had demonstrably not achieved the contractually agreed annual turnover objectives.

The court arrived at this conclusion because the commercial agent had not achieved the agreed targets in any of the years during which the contract had been in force and the principal had never objected to this fact at any time. As a result, the court held that the contractually agreed sales targets could not be regarded as binding; instead, they were viewed as objectives that were merely aspired to.

In order to avoid the risk of an effective extraordinary termination due to failure to achieve contractually agreed sales targets, thereby also avoiding the associated loss of the right to customer-based compensation and damages, it is advisable for commercial agents to refrain from entering into these kinds of sales target agreements altogether.