🟦 Planning to terminate an agent’s agreement? Check how much it could cost 🟦
Many businesses assume that, after terminating an agency agreement, they simply need to settle the agent’s outstanding commission.
👉 That is not always true.
Ending the relationship may also trigger an obligation to pay an indemnity: an additional monetary payment which, in some cases, can amount to the equivalent of the agent’s annual remuneration.
❗ Is an agent always entitled to an indemnity?
🚫 No.
The agent is entitled to this payment only where:
➡️ the agent brought in new customers or substantially increased business with existing customers;
➡️ after termination, the principal continues to derive substantial benefits from contracts with those customers;
➡️ equitable considerations support an award, particularly the commission the agent loses on contracts concluded with those customers.
💰 How much can the indemnity be?
The law sets neither a specific amount nor a simple calculation formula. It does, however, set an upper limit.
The payment cannot exceed the equivalent of the agent’s annual remuneration, calculated using average annual remuneration over the previous five years.
If the relationship lasted less than five years, the average over the entire term of the agreement is used.
⚠️ What does this mean for the principal?
The biggest mistake is to assess the cost of ending the relationship solely by reference to current commission.
In some cases, the indemnity may be one of the most significant elements of the final settlement with the agent.
📌 Conclusion?
Before giving notice, analyse both the agreement and the customer portfolio the agent leaves behind: whom they acquired, how business with those customers changed and what benefits the principal may retain after the relationship ends.
👉 Calculate the cost of terminating an agency agreement before giving notice — rather than waiting until the agent brings a claim.
