Why agency agreements are a sensitive issue for exporting SMEs

Many manufacturing SMEs operate in foreign markets through commercial agents.

Drafting an international agency agreement requires careful consideration of the applicable law, economic clauses and termination mechanisms.

Appointing an agent in Germany or in the United States may involve legal implications that may be very different from those under Italian law.

Among the most sensitive aspects are:

• termination indemnity
• notice periods
• payment of commissions
• the agent’s representative authority
• post-termination non-compete clauses

A preliminary legal assessment may be crucial to reduce the risk of unexpected costs upon termination of the relationship.

Italy: protection of the agent and termination indemnity

In Italy, agency agreements are governed by Articles 1742–1753 of the Italian Civil Code.

Upon termination, the agent may be entitled to a termination indemnity (which should not be confused with the severance payment applicable to employees) if:

• the agent has brought new customers or significantly developed business with existing ones
• the principal continues to derive substantial benefits from those relationships
• the indemnity is equitable in light of the commissions lost by the agent

The indemnity is not automatically due in every case and requires a case-by-case assessment, including consideration of the circumstances of termination and the deadlines for exercising the right.

The indemnity cannot exceed an amount equivalent to one year of commissions, calculated on the average of the last five years.

In practice, Collective Economic Agreements (Accordi Economici Collettivi – AEC) may also apply where they are incorporated into the relationship, affecting the calculation of the indemnity and potentially increasing the principal’s financial exposure. Collective agreements (AEC) do not automatically apply to international contracts (e.g. between a foreign principal and an Italian agent), unless expressly incorporated or applicable due to the parties’ membership in the relevant associations.

For SMEs, termination of the relationship may therefore involve significant financial implications.

Germany: a similar system with its own specific features

German law regulates commercial agency under Sections 84–92c of the German Commercial Code (HGB).

In Germany as well, the agent is entitled to a termination indemnity (§89b HGB) with characteristics broadly comparable to the Italian model:

• the right is largely mandatory in relationships with agents operating within the European Union or the European Economic Area
• the calculation is based on the future benefits for the principal
• the indemnity is capped at an amount equal to one year’s average commissions

When dealing with agents operating in Germany, it is therefore essential to assess the impact of mandatory provisions before inserting clauses on the choice of applicable law.

United States: no general termination indemnity but strong focus on commissions

In the United States there is no uniform federal regime governing commercial agency relationships.

The applicable rules depend on state law and common law principles. In general:

• there is no automatic right to a termination indemnity
• disputes typically concern the payment of earned commissions
• some states provide significant penalties for failure to pay commissions, including multiple damages (double or treble) and reimbursement of legal fees

In many states, a written agreement is required, and particular importance is given to defining when commissions are considered “earned”. In relationships with US agents, the main legal risk often concerns the correct regulation of commissions, payment terms and jurisdiction, rather than termination indemnities.

Notice periods: differences between Italy, Germany and the United States

Italy

The Civil Code provides for minimum notice periods increasing with the duration of the relationship (Article 1750 Civil Code), generally ranging from one to six months.

Germany

German law also establishes progressive minimum notice periods (§ 89 HGB), up to six months for long-term relationships.

United States

In the United States there is no uniform regime: notice periods are generally governed by contract and are often shorter than in European systems.

Commissions on repeat orders and transactions concluded after termination

One of the most sensitive issues in agency agreements concerns the agent’s right to receive commissions not only on transactions directly procured by the agent, but also on:

• repeat orders from customers originally introduced by the agent
• transactions concluded after termination of the relationship

Italy

Under Article 1748 of the Italian Civil Code, the agent is entitled to commissions:

• on transactions concluded as a result of the agent’s activity
• on transactions concluded with customers belonging to the territory or customer group reserved to the agent, where exclusivity is granted
• on transactions concluded after termination when the proposal was received earlier or when the transaction is mainly attributable to the agent’s activity and is concluded within a reasonable time

In long-term relationships, the distinction between “new orders” and “repeat orders” may give rise to disputes, especially where the contract lacks clear provisions.

Germany

Section 87 HGB regulates the right to commission in a similar way, recognising it where there is a causal link between the agent’s activity and the conclusion of the transaction, as well as in cases involving territorial or customer exclusivity.

For transactions concluded after termination, the commission may also be due if the transaction is concluded within an appropriate period of time.

Here as well, proof of the causal link may become decisive in litigation.

United States

In the United States, the right to commissions on subsequent orders largely depends on the contractual provisions and applicable state law.

In the absence of clear contractual regulation, interpretative disputes may arise as to:

• when commissions are considered earned
• entitlement to post-termination commissions
• the duration of the obligation to pay commissions

Authority of the agent and liability of the principal

In Italy and Germany, an agent does not automatically have authority to bind the principal, unless such authority is expressly granted (for example through a power of attorney or a contractual representation clause).

In the United States, by contrast, the doctrine of “apparent authority” may expose the principal to liability if a third party reasonably relied on the agent’s authority.

Although issues of reliance may also arise in civil law systems, apparent authority often plays a central role in US agency law.

In international contracts it is therefore important to:

• clearly define the absence or limits of the agent’s authority
• regulate the procedures for order acceptance
• establish clear rules for communications with foreign customers

Post-contractual non-compete clauses

In Italy and Germany, post-contractual non-compete clauses are permitted within strict limits (in particular, typically with a maximum duration of two years) and require the payment of specific compensation to the agent.

In the United States, their validity depends on state law, which varies significantly across jurisdictions, and there is no uniform federal framework.

A standard clause not adapted to the international context may therefore prove ineffective or unenforceable.

Governing law and jurisdiction: a strategic choice

In relationships with foreign agents, contracts often include choice of law and jurisdiction clauses.

However, it should be considered that:

• within the European Union, certain mandatory rules protecting the agent (in particular regarding termination indemnity) may apply even where a different governing law is chosen
• in certain US states, statutory provisions concerning commissions and jurisdiction may limit the effectiveness of contractual clauses

A prior assessment of the applicable legal framework is therefore particularly important in transactions involving foreign counterparties.

Practical considerations for companies in Brescia and Lombardy

For many SMEs in the region operating in international markets, agency agreements are part of a broader commercial expansion strategy.

It is therefore advisable to:

• assess the applicable law before signing the contract
• estimate the potential cost of termination
• carefully structure clauses on commissions and notice periods
• clearly define the agent’s authority
• regulate post-contractual non-compete obligations
• consider involving local counsel for foreign law issues
• integrate the agency agreement into a broader framework of ongoing legal support for the company

International agency agreements should generally not be managed using standard templates without adapting them to the relevant jurisdiction.

Legal notice

This article is provided for general informational purposes only and does not constitute legal advice. It does not contain any promise of results. For advice on specific matters, please contact the Firm.