The ECJ has held* that even if termination occurs during a trial period, a commercial agent is still entitled to the compensation or indemnity on termination under Article 17 of the EU Commercial Agents Directive**.
In December 2011 DTT, a French company, took on CMR as a commercial agent for house sales for an initial trial period of 12 months, each party having the right to terminate during the trial period on one month’s notice after the first month. CMR was set a target of 25 sales pa. In June 2012 DTT gave CMR one month’s notice of termination, CMR having achieved only one sale in five months. CMR claimed compensation on termination under Article 17. The issue for the ECJ was whether Article 17 applies where termination occurs during a trial period.
The ECJ concluded that:
- the Directive does not prevent an agent being engaged for a trial period;
- provided the conditions for entitlement to compensation or indemnity under Article 17 are met, the agent cannot be denied that entitlement because termination occurred during a trial period.
As a matter of principle this comes as no surprise: Article 17 is intended to compensate the agent where the principal will continue to benefit from his efforts after termination of the contractual relationship, so whether there was an initial trial period or not makes no difference to the agent’s potential entitlement.
What is difficult to understand, however, on the limited explanation of the facts given in the ECJ’s judgment, is how an agent who had only been in place for six months, and had obtained only one sale in that time, could possibly have a sufficiently valuable compensation claim to make it commercially viable to go all the way through the French court system and then on to the ECJ. It may be that in France the “rule of thumb” that a commercial agent is entitled to 2 years gross commission still applies, and would be the starting point for an award in this case (see Lonsdale v Howard & Hallam, para 14). [Comments on this from French readers would be welcome.]
Had this been a UK case, however, the entitlement to compensation would be the value of the agency business upon termination – the amount a hypothetical purchaser would have paid for the right to take over the agency and receive the income stream from it. On that approach, CMR would probably have struggled to prove the agency had any value, given its short life and their underwhelming performance while it was in place.
Even though having an initial trial period will not prevent a UK commercial agent from claiming compensation on termination, it may nonetheless be sensible for principals to consider proposing a trial period and a right of termination if it doesn’t work out too well. If there is such a period, and the principal terminates lawfully before or when it expires, the potential cost to the principal of any compensation award could in practice be limited.
** Reg 17 of the UK CA Regulations 1993
Except where otherwise stated, all information given and any legal opinions expressed on this website assume that English law applies. See Conditions of use.