The legal framework governing the commercial agency contract was established by the Law of 3 June 1994 on independent commercial agents (published in the Memorial A, Recueil de Législation, number 58 of 6 July, 1994, “the Luxembourg Law”), essentially enacts in national legislation the Directive 86/653/EEC Member States on the coordination of the laws of the Member States relating to self-employed commercial agents (the Directive).
Definition of Commercial Agent
Article 1 of the Luxembourg Law sets forth:
“For the purposes of this Law, “commercial agent” shall mean a self-employed intermediary who has continuing authority to negotiate either mainly or secondary against remuneration the sale or the purchase of goods on behalf of another person, hereinafter called the “principal”, or to negotiate and conclude businesses on behalf of and in the name of that principal.
The commercial agent is a commercial subject to provisions on the Law on establishment/setting up of 28 December 1988. He is not subordinated to the principal.”
The agency contract concluded for an indefinite period or for a fixed period with a term allowing an anticipated termination may be terminated by notice by either party.
The duration of the notice varies according to the duration of the agency contract.
The minimum period of notice for termination of agency contract is as follows:
- one month for the first year of contract and
- one month more for each additional year commenced, but the period of notice cannot exceed six months.
The parties may not agree on any shorter periods of notice.
Each party may terminate the agency contract without notice if exceptional circumstances make the continuation of any professional relationship between the agent and the principal impossible or in case of a serious default by one of the parties.
Indemnity or compensation or both
Luxembourg Law provides for cases where termination of the contract confers on the agent the right to an indemnity called “eviction indemnity” and the other option proposes by the Directive relating to compensation for the damage suffered by the agent as a result of the termination of the agency contract.
The expression “eviction indemnity” refers generally to the indemnity claiming by the titular of a commercial lease whose renewal is refused at the end of its lease.
The Luxembourg legislation also provides for compensation in case of non respect of the notice and where the agency contract is terminated early.
If compensation is claimed by the commercial agent in either context, damages can be cumulated with the amount of the eviction indemnity.
Calculation of indemnity/compensation
The amount of the indemnity may not exceed a figure equivalent to an indemnity for one year calculated from the commercial agent’s average annual remuneration over the preceding five years under the agency contract.
Where the contract is in force for less than five years, the indemnity shall be calculated based on the average’s remuneration throughout the period it was in force.
Damages have to correspond to the actual loss suffered, that is, a sum equivalent to the remuneration to which the party would have been entitled for the period separating the date of termination and the agreed expiration date of the agency contract.
The commissions preceding the termination as well as any other relevant factors are taken into account for the determination of such sum.
In case of litigation concerning the amount of the indemnity or the compensation, the judge is competent to raise or to reduce the amount of such indemnity and damages.
1) Is it possible to have a restraint of trade clause operating during the agency agreement and, if so, is it subject to any qualifications?
See point 2) below
2) Is it possible to have a restraint of trade clause operating following the termination or expiry of the agency agreement and, if so, is it subject to any qualifications?
The parties may insert into their agreement a non-competition clause which may be imposed upon the agent during the performance of the agency contract or thereafter.
The non-competition clause must be agreed upon in writing. It has to relate to a specific professional sector which is similar to the agent’s activity and be limited to the geographical area or group of persons assigned to the agent.
Article 26 of the Luxembourg Law further limits, to a maximum period of 12 months after the termination of the agency contract, the time during which the agent may be bound not to enter into competition with his former principal.
The principal may not enforce the non-competition clause if the agency agreement has been terminated in one of the following circumstances:
(a) the principal has terminated the contract in breach of the agreed or legal notice period and without there being any exceptional circumstances or a default of the agent;
(b) the agent has terminated the agreement because of a serious default of the principal provided the agent has informed the principal about this reason without delay; or
(c) if the agreement has been terminated by a court order pursuant to the principal’s fault or wrongful behaviour.
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