The French country risks include an unacceptable danger if the agent is a physical person and in any event all agents are entitled to a statutory termination indemnity right upon termination.
It is clear that ignorance of French law in the distribution field has in the past exposed certain American companies to unnecessary financial risks, even when the agency arrangement is memorialized in a contract prepared by able legal counsel in the United States and even when the contract includes provisions providing for all disagreements are to be resolved in the United States by a competent court or arbitrator.
The particular French country risks include the following:
- duty of the principal to inform the agent of acceptance or refusal of the transaction (sale) within a reasonable time,
- public policy restraints relating to the timing of the payments to the commercial agents,
- the unacceptable danger of retaining the services of a commercial agent who is a physical person,
- the statutory termination indemnity rights of commercial agents, and
- the case law conferred termination indemnity rights of distributors.
Timing of the Communications with and Payments to the Commercial Agent
Various laws and decrees set forth obligations of the principal, some of which may not be circumvented by contract.
Commercial Agent: Physical Person or Legal Entity
As a matter of prudence, the French commercial agent should always be a legal entity because a physical person may be deemed post facto to have been an employee and not an independent contractor of the principal.
Statutory Termination Indemnity Rights of Commercial Agents
Law No. 91-593 of 25 June 1991
In France, pursuant to Law No. 91-593 of 25 June 1991, and in probably most of the other countries forming the European Economic Union (including the UK and Germany), there are national laws which protect a commercial agent in the event that its principal terminates the « commercial agency » relationship. (One of the reasons why such laws exist so widely in Europe is the fact that there is an EEC Directive No. 86/653 from 1986 which directs the national governments of the member countries to enact such legislation.)
The relevant French law provides:
The commercial agent is entitled to receive a compensatory indemnity to cover his losses, if the relationship with the principal ends. [a provision which can not be waived under French law]
The law in question does provide a number of exceptions to the above compensation rule, including the following:
- material breach of its duties by the agent, or
the agent freely decides to terminate the relationship.
In application of such statute, French case law often sets the indemnity at an amount approximately equal to two times the annual commissions earned by the agent.
The above points do not identify all the traps for the unwary. French laws, decrees and judicial decisions determine other rights and obligations of principals and agents, be the agents commercial agents or distributors.