When hiring an agent to open markets abroad, a company may encounter unique provisions in the contract. A foreign country’s laws always supersede agency contracts, and those laws are immediately applicable when economic activity begins.
United States legislation typically does not include statutes that protect agents. However, some industries, like the automobile industry, contain specific laws to protect against agent abuse. Comparatively, agents in most industries are relatively unprotected.
In some Latin American countries, the agent is considered an employee of the corporation; the agent must follow the instructions of the manufacturer and is closely controlled. If local courts award damages in favor of the agent based on a contractual, unwritten agreement, the country could implement stricter labor laws. This may result in losses for the manufacturer, and the written contract with the agent may be taken more seriously.
The European Union, on the other hand, tends to protect agents with the Directive (86/653/EEC) [see Reference 1], which describes both fixed and infinite agency agreements:
- Agency subscribed for a fixed period of time. Here, the agency contract has a set and agreed-upon termination date.
If the contract continues and the agent works beyond the expiration date, then the agency contract terms legally shift, and the agent is considered an indefinite worker.
- Agency subscribed for an infinite period of time. For this agency contract, both parties can terminate the contract at any time by providing written notice. The minimum termination notice period is one month for a one-year contract, two months for a two-year contract, and, if legally allowed, six months for a six year contract.
According to the Directive, the only exceptions for agency contract termination are:
- Failure of one party to meet all or part of the given obligations.
For example, the contract may be terminated if the company fails to pay the agent when appropriate or if the agent does not meet commission requirements. In this instance, a company may include minimum results expected from the agent in the contract; if the agent fails to meet these contractual requirements, the company can terminate the agent.
- Exceptional circumstances.
An exceptional circumstance may be a state ruling that the economic activity developed by the company is reserved for state use only, such as certain technology businesses and army supplies.
The market in question may be closed to foreign business, like broadcast and television in the United States. In some instances, courts have overruled such embargos.
Other cases applicable to this provision include natural disasters, like hurricanes and earthquakes. However, agency contract termination due to natural disasters is determined on a case-by-case basis.
Fernanda Juppet, Corporate Attorney and MBA
[1.] See https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:1986:382:0017:0021:EN:PDF.