The Commercial Agency Agreement is regulated by means of the Colombian Commerce Code, specifically between articles 1317 – 1331.
Definition of Commercial Agent
It is a professional agent who is responsible of promoting with independence and stability, certain type of businesses in a part of the territory. The delegated businesses must be performed according to specific instructions given by the principal.
The Commercial Agency Agreement could be terminated by both parties at any time; therefore no proper notice should be given, unless agreed otherwise in the agreement.
Indemnity or compensation or both/ Calculation of indemnity/compensation
The Commerce Code regulates both. Depending of the causes that lead to the termination of the Commercial Agency Agreement, an indemnity and a compensation could apply.
If said agreement is terminated by reasonable causes, the amount of the indemnity must be estimated and liquidated according to the following rules:
- The agent would be entitled to receive an amount equal to the 8.33% of the commissions or payments average of the last 3 years, the that sum is multiplied by the total number of years that the Commercial Agency Agreement, lasted in full force and effect.
- If the Commercial Agency Agreement lasted less than 3 years, the agent will be entitled to receive an amount equal to the average of the total commissions or payments received during the total term of the agreement. Such amount would be calculated by adding all of the payments received by the agent and then dividing said sum by the number of payments made. As an example for clarification purposes, if the agent received 15 payments, equal to USD 15.000.00, the compensation that the principal would have to pay would be of USD 1000.00.
On the other hand, if the Commercial Agency Agreement is terminated by the principal without just case, the agent will be entitled to receive a compensation that must be estimated by an expert, taking into consideration issues such as, the extension, importance and significance of the delegated businesses. This rule will also apply when the Commercial Agency Agreement is terminated by the agent, for reasonable causes imputable to the principal.
Yes. The amount of the Pre-termination commission could be defined by the parties in the Commercial Agency Agreement.
The Post-termination commission does not apply, unless it has been stipulated by the parties in the Commercial Agency Agreement. This commission is replaced by the indemnity or compensation in case of termination of the agreement. Please note that according to the commercial law academics, it is not possible for the agent to resign to his commission rights previously or before he is entitled to receive it.
Back commissions do not apply. However, according to Article 1322, the agent will be entitled to receive the agreed payment even if the delegated business is not performed by causes imputable to the principal.
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?
Section 1318 of the Code of Commerce presumes this restriction, by granting the agent the exclusiveness in terms of territory and the future of the businesses, in said territory. However this legal presumption can be negotiated away by the parties, given that is not considered mandatory. Besides the mentioned presumption, there are other restrictions that can be stipulated such as:
- Type of services or goods that will be commercialized.
- Exclusivity, in separate channels for the same products which finally restricts the territory and the delegated businesses.
Said clauses are subject to qualifications, such as, the protection of the free competition and avoiding antitrust behaviors.
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 restraint of trade clauses operating after the termination of the Commercial Agency Agreement are not specifically prohibited. However, said clauses should not restrict the agent’s right to work or the regulation of free competition.
As to the agents right to work, said clauses may become a restriction, when such exclude a person or a legal entity from performing a professional activity in a certain part of the territory. In case this type of clauses become discriminative or affect the minimum living standards of the agent, they will become unconstitutional and therefore not be enforceable.
As to Colombian laws, restraint of trade clauses that operate after the termination of the Commercial Agency Agreement are permitted. Nevertheless, the effects of such provisions can restrict the free competition, by excluding or limiting a person or legal entity from entering into a specific market. In case the clause is intended to restrict the free competition it will be illegal.
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