Trial period, provisional appointment, probationary period. The terms are various. But the objective is not.
The idea is that if an agent is appointed on some form of conditional time basis, then the principal can avoid being liable for compensation or indemnity under the Commercial Agents Regulation. That is, if the trail period ends and the agent is not kept on.
In the 25th year of the Regulations, it is remarkable that urban myths persist, although this is perhaps the nature of myths.
The mythical nature of trial periods was exposed in a judgement last month of the European Court.
The agent claimed compensation under French law and had been appointed under a contract for a trial period of 12 months. After this the contract would be deemed to be for an indefinite period.
The contract laid down a target of 25 sales to be achieved per annum. However, less than seven months in the principal terminated the contract. Its decision was based on the fact that the agent had achieved only one sale.
After conflicting judgements in the lower courts, an appeal was made to the French Supreme Court. It was made to determine whether termination of an agency agreement, which had been entered into for a trial period on 12 months, gave rise to a claim for compensation under French law.
The French Supreme Court referred the matter to the European Court.
The judgement of the European Court was unequivocal.
It considered that the termination of a trial period constituted the termination of the agency relationship itself. As a result, French case law which suggested that the agency relationship had not been definitively concluded, due to the trial period, was wrong. An agent cannot be denied compensation or indemnity on the sole ground that the termination of the agency contract occurred during the trial period.
The European Court went on to effectively double-check its own conclusion by considering a further provision of the European Agents Directive. This sets out when an agent is not entitled to compensation or indemnity. As the European Court stated, to consider that no compensation or indemnity is payable when termination of the contractual relationship occurs during the trial period, is tantamount to allowing a ground of exclusion not provided for in the Directive.
Take Home Point
For principals, the message is clear. Reliance on trial periods as a way of avoiding a claim for compensation or indemnity by a commercial agent, simply will not work. Instead, the way forward for a principal is to seek to limit the agent’s potential claim for compensation or indemnity, within the provisions of the Regulations themselves.