Commercial agent status does not require the power to modify prices: The Court of Justice is in contradiction with the decisions of the French Cour de Cassation

09 September 2020
Catherine Robin

The Court of Justice of the European Union (CJEU) ruled on June 4, 2020 that a person who sells goods in the name and on behalf of his principal does not necessarily need to be empowered to change prices to be granted the legal status of commercial agent.

This position is diametrically opposed to the one of the Cour de cassation and the Cour d’appel of Paris, which required for several years this empowerment of the agent to be qualified as a commercial agent.

The harmonization in European Union of the commercial agent’s status was introduced in 1986 by a Directive (86/653/EEC of 18/12/1986) incorporated into the Commercial Code (Art. L134-1 and following) under which a commercial agent is the person in charge of, on a permanent basis, to “negotiate and possibly conclude sale, purchase, rental or service provision contracts for and on behalf of producers, manufacturers, traders (…)”.

The distribution via a network of commercial agents is particularly suited to the national and international distribution of products and services. For the duration of the contract, the agent does not act in his own name and does not develop his own clientele but that of the principal, who can thus make his brands known and develop his sales on a national or foreign market according to a light mechanism (the agent is remunerated by a commission on sales) through the intermediary of an operator who is familiar with the functioning of this market.

At the end of the contract, the principal retains the clientele developed by the agent, which enables him to establish himself on a long-term basis on the market developed by the agent, through a local subsidiary or a local distributor who accepts the risk of distributing the products and services on its own behalf. On the other hand, the agent loses the fruits of his work. The status of commercial agent provided for by the Directive enables him, on termination of the contract, to claim compensation for the loss or the damage caused by the termination of the relationship (Directive, Art. 17). French law has chosen to compensate the loss caused by the termination of the contract (Directive, Art. 17.3; C. Com. Art. L 134-12), which, according to French case law, has resulted in compensation most often equal to 2 years' commission calculated over the last 3 years of the contract.

For the last twelve years, and especially since 2014, and despite criticisms, the Cour de cassation, followed by the Cour d’appel of Paris, has been strictly applying the Directive, out of step with the courts of other European States and several other courts of appeal (for instance Lyon and Toulouse). Indeed, although the word "negotiate" does not have a legal definition in French law, they have consistently ruled that the intermediary who does not have the power to modify the terms of the contract with the customer (price and conditions of sale), does not have the power to "negotiate" in the name and on behalf of the principal as provided for by the definition of commercial agent (Cass. com. 15/01/2008, n°06-14698).

This strict interpretation of the term "negotiate" has had significant consequences for the agent under French law. Indeed, the agent who, at the date of signature of the contract believed himself to be protected by the legal status, found himself without this protection and deprived of the termination compensation, if he failed in bringing the heavy and difficult proof of his diligence with the clients, and of his negotiations on the price and his power to modify it.

It is in this context that the Tribunal de commerce of Paris referred a question to the CJEU for a preliminary ruling on the meaning of the word "negotiate" (T. com. Paris, 19/12/2018, n°2017/015204). The issue was important and the decision awaited with interest and impatience by practitioners of distribution law.

The decision of the CJEU of June 4, 2020 is clear and goes against the restrictive position of the Cour de cassation and the Cour d’appel of Paris: a person who sells goods for a supplier does not necessarily need to have the power to change the price to be qualified as a commercial agent.

Therefore, normally, the Cour de cassation and the Cour d’Appel of Paris have no other choice but to go back on their case law and abandon the condition of the power to negotiate prices as a requirement for a commercial agent. However, an arm wrestling with the Court of Justice is not to be excluded.

To industrials, producers and traders who may be concerned about this position, we would like to remind that:

- the amount of 2 years of commissions frequently awarded by the courts as compensation is not mentioned in the law: circumstances may justify a lower amount;

- this position is limited to commercial agency business and cannot be extended to other intermediaries or service providers.

Indeed, the commercial agent must look after the interests of the principal and act loyally and in good faith (Directive, Art. 3). In particular, the commercial agent must "make appropriate efforts to negotiate and, where appropriate, conclude the transactions for which he is responsible". Although these operations do not necessarily involve the ability to modify the price of the goods, they require him to provide information and advice as well as to hold discussions with potential or existing customers to encourage sales. Only efforts and actions performed in this respect allow the agent to claim for the status of commercial agent and for commission fees on sales if he deploys them on a permanent basis. Thus, an agent who never visits customers or a service provider who is responsible only for advertising operations in a territory cannot claim either the status of commercial agent or any termination indemnity.

Catherine Robin, Partner and Ambre Luciak, trainee.