Commercial Agents in the EU

Article 17 of the Commercial Agents Directive requires Member States to ensure that commercial agents are entitled to either compensation or damages when an agency contract is terminated. This provision reflects a compromise between differing national legal traditions, giving each Member State the choice between adopting a compensation system or a damages-based system. Both mechanisms aim to protect the financial interests of commercial agents when the commercial relationship ends.

Under Article 17, Member States may choose between two termination-protection systems: the German model of compensation and the French model of damages. Both systems safeguard commercial agents when an agency agreement ends, but they differ in methodology, calculation principles and the nature of the rights granted.

The Model of Compensation (the German Model)

Under the German system of compensation, a commercial agent is entitled to a compensatory payment after termination if they have secured new customers for the principal or significantly increased business with existing customers and the principal continues to benefit from those relationships. The compensation must be reasonable and reflect the agent’s loss of future commission arising from the goodwill they created during the contractual relationship.

The directive sets an upper limit equivalent to one year’s remuneration, calculated using the commercial agent’s average annual earnings over the previous five years or, where relevant, the full contractual period. This model is designed to prevent overly burdensome compensation awards while still recognising the long-term value an agent brings to the principal.

The German model is based on Section 89b of the German Commercial Code, which since 1953 has provided detailed guidance and extensive case law on compensation for goodwill. This longstanding jurisprudence is frequently used by courts across the EU when interpreting Article 17(2) of the directive.

In practice, compensation is often calculated by estimating future commissions the commercial agent would have earned from new or activated customers over several years, adjusting for customer attrition and present value. The amount may then be moderated based on principles of fairness and must not exceed the statutory ceiling. Article 17(2)(b) further clarifies that receiving compensation does not prevent a commercial agent from claiming additional damages under national law where warranted.

The Model of Damages (the French Model)

Under the French system, Article 17(3) grants commercial agents the right to claim damages for the financial loss suffered as a result of terminating an agency contract. Damages may be awarded where the commercial agent loses commission they would have earned through proper performance of the contract or where they have been unable to recover investments made to fulfil the agency agreement. Unlike the German model, there is no statutory ceiling on the amount that may be awarded.

The French model is rooted in national law dating back to 1958 and has generated extensive case law defining how loss should be calculated. Courts commonly assess damages based on two years of commission—either the total earned in the last two years or an average derived from the final three years of the contract. Adjustments may be made according to factors such as contract duration, the agent’s age, long-term operations or demonstrable additional losses.

Damages are calculated using the agent’s total remuneration, including special commissions and outstanding amounts, without distinguishing between new and existing customers. French courts emphasise that the agent’s loss is valued at the moment of termination. Future developments—such as the principal ceasing business or the agent later regaining customers—are not considered, and the agent is not required to mitigate their loss.

Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits anti-competitive agreements and concerted practices between undertakings. However, ordinary agency agreements typically fall outside Article 101 where the commercial agent merely negotiates sales and the principal bears the key commercial and financial risks. In such cases, the agent is regarded as an extension of the principal’s sales organisation rather than an independent market participant.

Where a commercial agent takes on significant financial responsibilities—such as financing stock, operating warehouses or assuming contractual liability—an individual assessment must be carried out to determine whether the arrangement constitutes a genuine agency relationship. If the agent bears substantial risk, the agency contract may fall within the scope of Article 101 TFEU and must comply with EU competition rules governing vertical agreements.