Under Dutch agency law, there are different ways to end agency agreements under Dutch law. The right to goodwill compensation under Dutch agency law is in that respect an important Dutch right of agents upon termination of their agreement. The main purpose of this is to provide compensation if the agent has brought in new business for the principal or has significantly affected the duration of the agreements currently held by the principal.
What are the requerements for the goodwill reimbursement in the Netherlands? In this article Lisa will explain how the right to goodwill compensation is regulated under Dutch agency law.
Requirements for goodwill compensation
Article 7:442 of the Dutch Civil Code stipulates that a principal is obligated to pay goodwill compensation to the agent. In order to be eligible for the goodwill compensation, there must be a reasonable cause in view of all circumstances. For that reasonable factor the agent’s loss of future commission on the contracts with the third parties plays an important role. As mentioned, another factor is the extent to which the agent has brought in new business that the principal will benefit from. This substantial benefit can arise from the generation of new clients by the agent, but also from current customers when their contracts have been extended due to the direct actions of the agent.
Calculating goodwill compensation under Dutch agency law
The amount of goodwill compensation available is not strict and depends on the degree of reasonableness and the contribution to the new business. However, there is a maximum sum of goodwill compensation. Unless the parties agreed upon a higher goodwill in writing, the compensation may not exceed the equivalent of one year’s compensation. That maximum is based on the average of the last five years or the actual period of work done.
Exceptions to granting a goodwill compensation
Certain exceptions exist on granting the goodwill compensation under Dutch law. They can undo the principal’s obligation to compensate the agent.
This is the case when:
1) the contract has been ended by the principal due to a breach constituted by the agent;
2) the contract has been terminated by the agent (unless this action is justified by conduct that is attributable to the principal or on the basis of the age, invalidity or sickness of the agent where he cannot be reasonably expected to continue his duties) or
3) the contract has been ended by the agent who has, with the authority of the principal, transferred the contract to a third party.
Claiming goodwill reimbursement: be on time!
In principle a commercial agent has a right to claim a reimbursement for goodwill. This is without prejudice to the commercial agents’ right to claim damages. However, the agent needs to inform the principal that he wants to claim this compensation. This needs to ben done within one year after the agency contract has been ended. The right to goodwill compensation will otherwise be vanished.
Dutch agency lawyer for goodwill compensation
The termination of agency agreements is a complex process and it is thus important to claim the right to goodwill compensation in a proper and timely matter.
Lisa Jie Sam Foek has a lot of experience in providing assistance in the termination of agency contracts for agents, as well as for principals. Please feel free to contact Lisa Jie Sam Foek our Dutch contract lawyer for goodwill compensation if you have any queries (email@example.com)