Agency-Agent-Supplier Agreements
In commercial life, agency agreements play a vital role, however, the status of the parties, namely the supplier on the one hand and the commercial agent on the other, has been clearly unequal over the years. The reason for this is that many suppliers used the agent to market their products and, once they were successful, terminated the contract with him. A change occurred in this situation in 2012 following the adoption of the Agency Contract Law, which granted many rights and comprehensive protection to the commercial agent.
By Igal Mor, Adv. & Notary
Accuracy in Legal Advice. Excellence in legal support.
An introduction
In the relationship between the supplier and the commercial agent, the latter acts as an intermediary between the supplier and the customer. Basically, its purpose is to market the supplier’s products as much as possible in exchange for commissions. It requires the agent to invest a considerable amount of time and effort in this work, including utilizing his business relationships and his reputation. A good agent yielded a number of benefits for the suppliers they worked with, including the expansion of their customer base and, more than once, the opening of new market shares. His problem was that the supplier severed his connection with the agent precisely when he began to succeed. Since the commercial agent is not an employee of the supplier but an independent contractor, he was not entitled to advance notice, financial compensation, or any basic duty of fairness or loyalty on the part of the supplier. As explained below, the Agency Contract Law sought to change this situation by providing legal status and rights for commercial agents. It is important to emphasize that the law provides that it should not be conditioned except for the benefit of the commercial agent.
Commercial agent is a person who locates customers or engages in activities with the purpose of bringing about a contract between a supplier and a customer for the purchase of goods marketed by the supplier;
“Supplier” means a manufacturer of goods who markets those goods, or a holder of the right to use the trademarks associated with those goods; “trademark” means a registered or unregistered trademark;
Law of Agency Contracts (Commercial Agents and Suppliers), 2012
Relationship definition
First, the law determines who the commercial agent is and what the essence of the contract between him and the supplier is. In general, a commercial agent is someone who locates customers or engages in another activity that leads to a contractual agreement between a customer and a supplier. Moreover, the law provides a framework for agency agreements between suppliers and commercial agents, in which the supplier enhances the agent’s power by authorizing him or her to locate new customers or contract with existing clients for the purpose of purchasing the goods that the supplier markets. It is important to emphasize that these agreements are made without an employee-employer relationship or a partnership relationship between the parties. However, the law also requires that the parties to an agency agreement act faithfully toward each other. In spite of the agent’s duty of loyalty, as he markets the supplier’s products, the latter was not obligated to be loyal to the agent, resulting in the inequality between the two parties.
Notification and compensation in advance
In order to prevent situations in which the agent invests everything in the marketing of the supplier’s products only to end up with a broken trough, two important rights were granted to him by the legislator. The first is advance notice, according to which each party seeking to terminate an agency agreement for an indefinite period must provide advance notice to the other. In addition, the law determines the minimum duration of the notice, based on the period of time since the commencement of the contract. As a second right, the agent may be compensated by the supplier for contracts with new customers or for an increase in the scope of his business with existing customers. In order to receive financial compensation, the commercial agent must have been an effective factor in the increase in contracts during the period of the agency agreement, and these contracts must have continued to provide benefits to the supplier beyond the duration of the contract. According to the law, the amount of compensation will be equal to the average monthly profit for each year that the agency contract was in effect, up to a maximum of 12 months.
Termination of an agency contract compensation
5. a) Where an agency contract has been concluded by either party, a commercial agent will be entitled to compensation from the supplier in the event that the supplier engages with new customers or if the supplier’s business with existing customers significantly increases, as long as all of these requirements are met:
(1) a one-year agency contract was in place;
(2) During the term of the agency contract, the commercial agent was the primary factor in contracting or expanding business;
3) Even after the expiration of the agency contract period, the engagements or expansion of the aforementioned businesses yield fruit for the supplier.
Amount of compensation according to subsection (b) will be equal to average monthly profit during the agency contract period, up to a maximum period of 12 months;
“Average monthly profit” – the average monthly excess profit that accrued to the commercial agent during the three years preceding the termination of the agency contract or during the period when the contract was in effect, whichever is shorter;
An “excess profit” is the result of the supplier’s engagement with new customers or a significant increase in the scope of the supplier’s business with existing customers that was the result of the commercial agent’s efforts.
c) Notwithstanding the provisions of subsection (a), a supplier shall not be liable for compensation if he is legally entitled to terminate the agency contract due to a breach of the contract by the commercial agent.
d) The court may reduce the amount of compensation as provided in this section or decide that no such compensation shall be paid if it finds that it is just and appropriate to do so under the circumstances of the case.
Law of Agency Contracts (Commercial Agents and Suppliers), 2012
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Commercial law at Mor & Co. is a department with extensive experience. The department assists agents or suppliers, entrepreneurs, businesses, and various corporations from Israel and abroad in a wide range of commercial law matters.
