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On the client indemnity provided for in the Agency Contract Act in the Covid-19 era

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Analysis of the consequences of the health crisis on Agency Contracts

The consequences that the health crisis is having on a multitude of sectors are not exhausted. From a legal point of view, the application of the 'rebus sic stantibus' clause or lease contracts have been the subject of multiple and highly interesting analyses since March last year.

There are other situations which, in our opinion, are going to generate quite a few conflicts, and which will require solutions, sometimes imaginative ones, to mitigate the dysfunctions that the effects of the pandemic are going to cause or are already causing.

Within this group of cases we find agency relationships, and those that jurisprudence has been assimilating, at least in certain respects.

Article 28 of Law 12/1992 of 27 May 1992 on Agency Contracts establishes that if, on termination of the contract, the agent has brought new clients to the employer or has significantly increased the turnover of previous clients, he will be entitled to compensation if he continues to produce substantial advantages for the employer.

This regulation has been considered as the transfer to the field of agency contracts of the general principle of good faith, which is also the basis of the prohibition of unjust gain. 

 

Compensation limit set by law

What is happening is that the Law establishes a limit to this compensation, so that it may not exceed, in any case, the average annual amount of the remuneration received by the agent during the last five years or, during the entire duration of the contract if this is less.

A sharp drop in sales, such as the one that may have occurred in the past financial year 2020, will logically result in the amount of the agent's commissions also being reduced, with an additional significant consequence: the amount of the possible compensation for clients would be significantly reduced if that extremely poor last financial year were included when quantifying the average remuneration over the previous 5 years, as established in the regulation.

No less relevant would be a drastic reduction in commissions - when determining the compensation for lack of notice in accordance with the provisions of article 25 of the Law, if the employer decides to terminate the agency contract unexpectedly, as the commissions received in the previous year are also taken as a reference.

Although the option of excluding the result for 2020 from the calculation of the average is contrary to the wording of the rule, we believe that measures should be taken to correct an anomaly that could well be used by entrepreneurs to terminate long agency contracts with considerably lower costs than those they would have had to face in a scenario other than the current one, and without the agent benefiting from a future recovery of the activity.

This, precisely, could be one of the solutions: to terminate the relationship in the current circumstances, essentially for reasons of legal certainty, leaving the door open, however, to a future regularisation that compensates the agent for this reduction in his compensation along the lines already set out of the application of the general principle of good faith, and of the mandate to avoid situations of unfair gain.

 

For further information, plese contact:

José María Rebollo

josemaria.rebollo@es.Andersen.com

 

You can read the full article in Confilegal

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