A new case on the EC 653/86 Directive before the Court of Justice.

Silvia BORTOLOTTI | EU | 2005-09-06


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According to Article 1751 of the civil code, which implements Article 17(1) of the directive (‘German system’) the agent has right to indemnity if and to the extent that:

  • he has brought new customers or has considerably increased business with the existing customers and the principal continues to derive substantial benefits from the business with such customers and
  • the payment of such indemnity is equitable having regard to all the circumstances and in particular the commission lost by the agent on the business with such customers.

The amount of the indemnity cannot exceed a sum equal to a yearly indemnity calculated on the average of the commissions earned in the preceding five years.

However, the associations of the agents and the principals have concluded collective agreements which provide for a different system of calculation, based on a percentage of the commissions paid during the contract, which amounts to 4 to 5% of the total amount of commissions earned by the agent. This indemnity is due even where the agent has not developed new customers. Moreover, part of the amount, and namely the FIRR indemnity (which is paid yearly by the principal to Enasarco – the social security institution of the agents – which pays it to the agent at the time of contract termination) is also due if the contract is terminated for reasons for which the agent is responsible or in case of termination by the agent himself.

The reason why this system has been agreed by the agents’ unions is that, while it gives lower amounts to agents with high performances, it warrants in any case a minimum indemnity to less performing agents, which is moreover easy to calculate (and leaves little space to discussion as to the determination of the amount).

The Italian Courts, in several occasions, had been asked to decide about the compliance of the provisions contained in the collective agreements with Article 1751 of the civil code, which is a mandatory rule. The majority of the courts decided that the system of calculation of the collective agreements was valid because it is more favourable to the agent (by comparing the two methods ex ante). A minority of courts, however, decided, on the basis of a comparison made ex post, that the indemnity of the collective agreements was invalid whenever the agent would have obtained a higher amount through the direct application of Article 1751 c.c. The Court of Cassation did not take a clear position, but issued two conflicting judgements on this matter.

Since Article 1751 of the civil code implements the EC Directive, it was predictable that the issue would have been finally referred to the EC Court of Justice and that is what the Italian Supreme Court did with decision 20410 of October 18, 2004.

We are now waiting for the decision of the Court which may have a substantial impact on the Italian law, as applied at present.

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