Commercial agent compensation in Germany
The right of every commercial agent under German Law to get a compensation payment is laid down in § 89b German Commercial Code (Handelsgesetzbuch, HGB). The purpose of this severance payment is to provide the commercial agent with compensation for the lasting benefit they created for the business. This particularly includes building relationships with regular customers and clients, who will remain (at least mostly) customers after the completion of the contract. The compensation for commercial agents under German Law also relates to substantially intensified relationships with existing customers. In both cases, the commercial agent created value for the business that will outlast the contractual relationship and can therefore not be compensated by the commission payments. For this reason, German Business Law provides specific severance payments for commercial agents.
Beforehand exclusion of the agent’s compensation is invalid
The described legislative concept that is now practiced similarly in all the Member States of the European Union (EU) also explains why a beforehand exclusion of the right to a severance payment cannot be valid. Surprisingly, many businesses are not appropriately prepared for this relatively high level of protection for commercial agents in Germany and the EU. The statutory provisions for commercial agents in Germany (or their EU equivalent) are applicable as soon as an agent is active on German territory. So whenever the German market and German customers are involved, it is quite likely that there are compensation claims available for the commercial agent under German Law. Therefore, businesses should prepare themselves for such a claim.
Defense litigation against a commercial agent claim for compensation
The principle of fair compensation for the remaining value created also makes clear that various aspects have to be assessed. The basis for an assessment of the amount to be paid is the average commission for a certain period (depending on the industry, around 4-6 years), which has to be reduced in accordance with a probable migration factor and a discount rate. Furthermore, the saved costs of the agent have to be deducted. Additional reductions may be appropriate if the commercial agent sells competing products in the same industry or has acted in breach of contract during the relationship. Moreover, of great practical importance is every other possible reason for the success of the business that is not related to the commercial agent’s direct efforts (e.g. the pull effect of a brand or similar factors).
Statutory limitation of the commercial agent compensation claim under German Law
Under German Commercial Law, the commercial agent has to make their claim for compensation within one year after the end of the business relationship. This is an absolute cut-off period that can not be extended. From the perspective of the commercial agent, therefore, it is vital to produce an explicit claim within this period.