📌 Your agent brings in customers, builds relationships with them and keeps in touch. You nevertheless decide to terminate the agreement. In practice, an agent may then move to a competitor and try to sell competing products or goods to your customers. What can you do?
✅ You can protect yourself by including a non-compete obligation in the agency agreement…
It need not actually form part of the agency agreement: a non-compete obligation can be covered by a separate agreement. To comply with the Civil Code’s agency provisions, an agreement imposing such a restriction must meet three conditions:
➡️ it must be concluded in writing to be valid, unlike the agency agreement itself, which can take any form;
➡️ it must define the scope of the restriction precisely. A general statement that “the agent may not compete with the principal” is insufficient. The agreement must identify the customer group or geographical area covered and the types of goods or services to which the agency agreement relates;
➡️ it must specify the duration of the restriction, which cannot exceed two years after termination of the agency agreement. Although not expressly stated in the legislation, failure to specify a duration may invalidate the restriction. The same may apply if the agreed period exceeds two years. Some legal commentators, however, argue that the restriction is not invalid in that case, but simply applies for the maximum period of two years.
❗ Can a non-compete obligation be unpaid?
Yes, but this must be expressly stated in the agency agreement. Otherwise, the restriction is treated as remunerated. The agent may then claim remuneration appropriate to the benefits the principal derives from the restriction and the earnings opportunities the agent loses as a result.
⚠️ Importantly, the agent is also not entitled to remuneration for the non-compete obligation where the agency agreement ends because of circumstances for which the agent is responsible.
📌 Conclusions
A non-compete obligation can effectively protect the principal against the agent taking over customers. However, the provisions must be drafted correctly to avoid the risk of invalidity.
NOTE: The above concerns the Civil Code requirements. Even a non-compete obligation which complies with agency law may infringe competition law, which requires a separate assessment. We will discuss what that assessment should consider in the next instalment.
