In agency agreements, clauses providing for the agent’s obligation to transmit during each year orders resulting in the conclusion of sales contracts for a predetermined amount (the so-called ‘minimum sales targets) are quite common. These clauses also provide that, in the event of failure to reach that minimum, the principal can terminate the agreement pursuant to Article 1456 of the Italian Civil Code (express termination clause) without having to give the agent any notice.
Recourse to the express termination clause, governed by Art. 1456 of the Italian Civil Code (express termination clause), allows the parties to establish that in case of non-performance of a certain obligation the contract can immediately terminate. Such termination occurs at the time when the other party declares to the other that it avails itself of the express termination clause
In principle, when such an express termination clause is agreed upon by the parties, in case of disputes, the Court may not make any enquiry as to the importance of the non-performance itself, but must only ascertain whether it is imputable to the party in breach. The reason is that the parties, in their contractual autonomy and freedom, have established in advance to assess the importance of a non-performance which will then determine to the termination of the contract without notice.
However, when an express termination clause is inserted in agency contracts, these principles have been questioned by case law. In particular, there is consistent case law that is of the opinion that the judge must in any event assess the seriousness of the agent’s breach excluding the agent’s right to the indemnity for lack of notice as well as for goodwill indemnity.
Express termination clause and lack of notice
Art. 1750 of the Civil Code provides, for agency contracts of indefinite duration, that either party may terminate the contract by giving notice, which must comply with the terms set forth in Art. 1750 of the Civil Code. paras. III and IV:
“3. The period of notice shall in no case be less than one month for the first year of the contract, two months for the second year commenced, three months for the third year commenced, four months for the fourth year, five months for the fifth year and six months for the sixth year and all subsequent years.
4. The parties may agree on longer notice periods, but the principal may not observe a shorter period of notice than that imposed on the agent.’
This obviously does not mean that in agency contracts termination of the contract without notice or, in the case of fixed term contracts, before the expiry of the term is not admitted. A termination without notice it possible by analogically applying the concept of “just cause for termination”set forth by Art. 2119 of the Civil Code dealing with employment relations. According to such Article “Either party may terminate the contract before the expiry of the term, if the contract is a fixed-term contract, or without notice, if the contract is of indefinite duration, if there is a clause that does not permit the continuation, even temporarily, of the relationship. […]”
The Italian Supreme Court, by applying such principle, is of the opinion that even in the presence of an express termination clause, the judge must in any event proceed to an assessment of the seriousness of the breach, recognizing the agent’s right to an indemnity for lack of notice where the breach does not constitute a “just cause for termination”. (Cass. 23/06/2023 no. 18030, in Laws of Italy; Cass. 04/08/2021, no. 22246, in Laws of Italy; Cass. 30/11/2015 no. 24368, in Agents & Rappr, 2016/1, Cass. 28/10/2021 no. 30488 in www.onelegale.wolterskluwer.it; Cass. 04/08/2021 no. 22246 in www.onelegale.wolterskluwer.it; Cass. 30/11/2015 no. 24368, in Agents & Rappr., 2016/1, Cass. 25/05/2012 no. 8295 in www.onelegale.wolterskluwer.it Cass. 18/05/2011, no. 10934 in www.onelegale.wolterskluwer.it).
By applying these principles, notwithstanding the provision of the express termination clause, the agent’s right to notice was recognized in the following circumstances:
– failure to reach unrealistic minimums targets (three times the amount charged in previous years had been agreed upon (Cass. 18/05/2011, no. 10934, in Leggi d’Italia);
– failure to reach a minimum target when such failure was tolerated for many years by the principal (Trib. Bari 02/05/2012, in Leggi d’Italia; (Trib. Vicenza 17/04/2020, n. 780, in Agenti & Rappr., 2020/2, pp. 42-43);
– failure to reach a minimum targets justified by the principal’s adoption of an excessively high pricing policy, which was challenged by the agent during the course of the relationship (Trib. Bari 02/05/2012, in Leggi d’Italia) or by s.c. “market saturation” (in the latter case the agent had reached the same amount of orders as the previous year equal to 74% of the agreed minimum amount of business (Court of Appeal of Venezia 29/11/2024 in bdp.giustizia.it);
– the achievement of 80% of the minimum target (Trib. Milano 14.01.2022 no. 943 in bdp.giustizia.it); a deviation of just 0.2% between the minimum turnover required by the principal and that achieved by the agent (Trib. Como 29/10/2018, no. 230, in Agenti & Rappr., 2018/4, p. 37)
Conversely, a “just cause for termination” was held to exist and the agent’s right to notice was denied in the following cases:
– failure to achieve even half of the agreed minimum target. (App. Aquila 30/05/2023 no. 851 in bdp.giustizia.it; Trib. Milano 18/11/2013, in Leggi d’Italia;
– the achievement of 1/3 of the agreed minimum target (Trib. Bologna 21/01/2015, in Leggi d’Italia; Trib. Busto Arsizio 07/04/2021, no. 142, in Agenti & Rappr., 2021/3, pp. 7-9)
It is worth to know that there are still some Courts that follow the “old” case law which considers that the express termination clause operates automatically and excluded the possibility for the judge to evaluate the seriousness of the breach (the agent’s failure to meet the minimum targets), with the result that the agent is not entitled to receive an indemnity for lack of notice. (Cass. 4.10.2013 no. 22722; Cass. 5.06.2009 no. 13076 Cass. Civ. 2.05.2006 no. 10092; Cass. 14.06.2002 no. 8607; Cass. 16.04.1992 no. 4659; Cass. 27.08.1987 no. 7063; as to the Courts of Merit followed this minority orientation: App. Milan 14/11/2023 no. 3215 in bdp.giustizia.it; App. Milan 16/02/2023 no. 120 in bdp.giustizia.it; App. Milan 16/02/2021 in bdp.giustizia.it; Trib. Arezzo 20/10/2016, no. 564, in Agenti & Rappr., 2016/4, pp. 4-7).
Express termination clause and goodwill indemnity
Finally, it should be pointed out that the express termination clause does not exclude the payment of a goodwill indemnity to the agent, the right of which will have to be assessed considering whether the non-performance constitutes a breach attributable to the agent that is so serious as not to permit the continuation, even provisional, of the relationship (Article 1751 of the Italian Civil Code).
Conclusions
When the principal terminates the agency agreement without notice pursuant to an express termination clause for failure to reach minimum targets, it will be advisable to carefully assess whether the effectiveness of the express termination clause can be challenged according to the above case law.
Silvia Bortolotti, IDI Vice-Chair/Secretary General and Country Expert for Italy
&
Mariaelena Giorcelli
