Parallel Sales in the EU. When and to what extent can a manufacturer control them?
When we speak of parallel sales, we are referring to imports alongside those made by an 'official', i.e. territorially competent, importer[1]Parallel traders enter the market reserved for exclusive distributors, without having direct access to the supplier, which only supplies authorised dealers.
Parallel trade, over the years, has taken very diverse forms and has often allowed the emergence of 'alternative' trade networks, which have flanked the official ones set up by the manufacturer; sometimes they are fed by the exclusive distributors themselves, who, having purchased the goods from the manufacturer, find it cheaper to resell them to parallel traders, with whom they have established trade relations; other times, parallel traders procure the goods from retailers in another country, where market prices are lower.[2]
1. Is an exclusive sales system that blocks parallel distribution lawful?
EU legislation has been confronted with this phenomenon from the very beginning and has had to try to find a balancing between, on the one hand, the free trade in goods and, on the other hand, the commercial interests of individual producers to divide up the different European markets through the appointment of exclusive dealers. The Commission's approach has always been to allow manufacturers to create networks by appointing exclusive dealers, so that they could more easily manage the different European markets. The 'compromise' that was reached was to create a clear dividing line between the forms of exclusive 'open' distributionwhich are considered permissible in principle, and so-called 'closed' exclusivities, which are almost always considered unauthorised[3].
The first forms are characterised by the fact that the dealer obtains the right to be the only party to be supplied by the manufacturer in a given territory. In any case, the position which is granted to the latter is not a 'monopoly', since parallel importers, in the manner and within the limits which will be described below, may purchase goods from third parties (wholesalers or dealers in other areas), and then possibly also resell them in the dealer's exclusive territory.
In contrast, theexclusive 'closed' is characterised by the fact that the dealer is granted perfect territorial protection by imposing on all distributors in the network a prohibition not to resell to persons outside their area, and a further obligation to impose this prohibition on their purchasers as well, and so on.
This approach was taken in the (now distant) decision Grundig[4]which the Commission has never deviated from, where it was deemed contrary to the principles of the European single market, the absolute protection of dealers and the creation of closed exclusive distributions, through, for example[5]:
- export ban imposed by suppliers on distributors;
- supplying traders known for their resale activities outside the established areas;
- price differentiation according to destination;
- reduction or outright abolition of discounts to wholesalers who had made unwanted exports[6];
- Reducing the quantities usually sold to wholesalers, with the aim of discouraging parallel exports.
The Court therefore held not only that distribution contracts with absolute territorial protection fall under the prohibition of theArticle 101(1) TFEUbut even that such agreements are prohibited solely on the basis of their restrictive object, without any market investigation being necessary to ascertain the effects such bans actually have on the market.
2. Regulation 330/2010: active and passive sales.
The Court's approach was also confirmed by the Regulation 330/2010on vertical sales. The Regulation, on the one hand, empowers market sharing through the granting of open exclusivity[7]On the other hand, Article 4(b) provides for the validity of contractual clauses imposing on importers the ban on active sales [8] (and not passive[9]) in the exclusive territory or to exclusive customers reserved for other distributors. Importantly, the exception is not limited to the prohibition of active sales in the exclusive territory, but also covers the ban on sales to exclusive customersthat is to say, that which the supplier reserves to itself, or has reserved for another purchaser.
The supplier, therefore, may not merely prohibit the distributor from making sales outside a zone or to a group of customers, since the prohibition, in order to be lawful, must relate to active sales in a zone or to customers exclusively reserved to a different distributor, or to the supplier itself.
The grantor may therefore prevent its exclusive dealers from taking initiatives aimed at conquering parts of the market in zones other than those assigned to them; in any event, the prohibition of out-of-zone sales may not be imposed for passive sales, i.e. the response to unsolicited orders from individual customers outside the exclusive zone.
3. Internet sales and the impact on parallel sales.
The phenomenon of parallel distribution certainly developed with the advent of Internet. The web being a platform that, by definition, can be visited "worldwide"has significantly increased the potential of individual links in the distribution chain to be visible (and thus sell) in territories exclusively reserved for other players (on this topic see Can a manufacturer prevent its distributors from selling online? Active sales, passive sales and geoblocking.).
Although there are substantial differences between sales online and sales offlineit can certainly be said that the principles set out in the preceding paragraph apply equally to both types of market. The powers and limits of the manufacturer to prohibit and direct the sales of its dealers are the same for traditional and electronic commerce: it will therefore be essential to understand, even in this context, the distinction between active and passive sales.
According to the Orientations of the Commission, the mere existence of an Internet site must in principle be regarded as a form of passive selling. Indeed, it reads:
"If a customer visits the Internet site of a distributor and contacts him, and if that contact results in a sale, including actual delivery, this is considered a passive sale. The same applies if a customer decides to be informed (automatically) by the distributor and this results in a sale. " [10]
Otherwise, it must be considered an active sale:
"Online advertising specifically targeted at certain customers [...]. Banners showing a territorial link on third party websites [...] and, in general, efforts to be found specifically in a particular territory or by a particular customer group constitutes active selling in that territory or to that customer group [including] the payment of a fee to a search engine or online advertising provider to present advertisements specifically to users located in a particular territory. "
The appreciable expansion of sales via the Internet has had the effect of opening up considerable space for intra-brand competition and parallel distribution, and this has certainly also been favoured by European case law, which tends to favour the use of this tool also by the supplier's dealers and intermediaries.
Indeed, following the rulings Pierre Fabre of 13.10.2011[11]an absolute prohibition on distributors from using the internet for the distribution of purchased goods is to be considered fundamentally impermissible. A limit to this dispositive power was imposed by the judgment of 6 December 2017 Coty Germany GmbH[12]where the Court clarified that in a system of selective distribution of luxury products, a manufacturer (in this case Coty) is authorised to impose a clause on its distributor allowing it to sell the products via internet, but on condition that this activity is carried out in such a way as to preserve the luxurious connotation of the products.
The most recent decision Guess of December 2018[13]in which the Commission fined the parent company EUR 40 million for imposing a ban on retailers selling contractual products via internet or any other electronic or computer system, without the prior written consent of Guess same.
Also linked to the Internet is the question - which would require much more in-depth study on its own - of whether a manufacturer can directly sell on a platform online products at lower prices than those recommended to their dealers. Indeed, the question arises whether such conduct can be considered contrary to the performance of the contract in good faith formerly Article 1375 of the Civil Code. Italian jurisprudence does not yet appear to have ruled on this matter; for the time being, we limit ourselves to recommending that this case be clearly and precisely provided for in the concession contract, since otherwise such conduct could give rise to very complex and burdensome disputes for both parties.[14]
4. Can parallel distribution be avoided by creating a selective distribution system?
One way to avoid the creation of parallel distribution could be the creation of a selective distribution network, since, in this type of distribution, the manufacturer can demand that its goods can only be purchased from certain intermediaries, who comply with the form and quality requirements imposed by the manufacturer (cf. Selective distribution. A brief overview: risks and benefits). It follows that, in a selective distribution system without loopholes, products do not come into the possession of intermediaries or commercial resellers who are not admitted to the network. (cf. The mixed system: when the manufacturer chooses to adopt both exclusive and selective distribution).
However, even this system has advantages, disadvantages and limitations; firstly, it can only be implemented for products high quality and technologically developed.[15]
In addition, Article 4 d) of the Regulation, however, provides for restrictions on the manufacturer's power of direction, which may not prevent the "cross-supplies between distributors within a selective distribution system, including distributors operating at different trading levels." This freedom for each member of the selective network to obtain supplies from other members without hindrance is the necessary counterpart to the exclusion of parallel distribution networks. The Orientations provide in paragraph 58 that:
"an agreement or concerted practice may not have as its direct or indirect object to prevent or restrict active or passive sales of the contract products between the selected distributors, who must remain free to purchase those products from other designated distributors in the network, operating at the same or a different level of trade. Selective distribution may therefore not be combined with vertical restraints aimed at forcing distributors to purchase the contract products exclusively from a particular source."
Last but not least, it is noted that, albeit in a selective distribution, "the producer may impose a no-see obligation on parties (other than end users) outside the network" formerly Article 4(b)(iii), very often in practice many manufacturers distribute 'selectively' only in the most important markets, while reserving a 'classical' system (i.e. through an exclusive importer) for the other zones. In such a case, the manufacturer may not impose a ban on passive sales, vis-à-vis resellers belonging to areas where the selective system does not exist, but only prohibit active sales under Article 4(b)(i).
However, this is without prejudice to the right of the producer, who has legitimately adopted a selective distribution system in order to protect the branded productsto take action against parallel distributors, whose resale methods are such as to damage the image of luxury and prestige - which the manufacturer seeks to defend precisely through the adoption of a selective distribution system - or in any case that there is a confusing effect as to the existence of a commercial link between the trademark owner and the unauthorised reseller. In this regard, we highlight two recent orders of the Court of Milan (cf. Online sales by unauthorised distributors. The Amazon, L'Oréal and Sisley cases). [16]
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[1] See definition from Simone Online Dictionaries https://www.simone.it/newdiz/newdiz.php?action=view&id=736&dizionario=11
[2] On this point see Pappalardo, The Competition Law of the European Union, p. 403, 2018, UTET.
[3] On this point see Bortolotti, I contratti di distribuzione, p. 690, 2016, Wolters Kluwer.
[4] Decision Grundig-Costen, 23.9.1964.
[5] On this point see Pappalardo, The Competition Law of the European Union, p. 383, 2018, UTET.
[6] The Commission expressed its opinion in the case Distillers (1978), where the Commission emphasised the fact that rebates can be used to regulate export flows indirectly ".by providing that DCL's UK resellers who export spirits to other EEC countries are charged a different price to that charged when the spirits are resold for consumption on the domestic market, and by also reserving the price discounts only to sales of spirits for resale and consumption in the UK, restrict the freedom of those customers to resell the products in question in another EEC country (...).
The inapplicability of discounts to sales of spirits for export and the application of different prices to the same customers for spirits intended for export and those intended for consumption in the United Kingdom, constitute a clear attempt to prevent parallel imports from the UK into other EEC countries and therefore amount to an express export ban (n. 2, p. 25).
[7] Importantly, however, Regulation 330/2010, contrary to its predecessor 2790/1990, does not mention the "open" exclusivity clause, but it is "automatically" exempted on the basis of the principle of the lawfulness of all clauses not expressly prohibited, laid down in Article 2 of the Regulation.
[8] Le Commission Guidelines (LGC or Orientations) in paragraph 51, active sales are defined as: 'active contact with individual customers for instance by mail, including by sending unsolicited e-mails, or by visits to customers; or active contact with a specific group of customers, or customers located in a specific territory through advertisements in the media or via the Internet or other promotions specifically aimed at that group of customers or customers in that territory. Advertising or promotions that are only attractive to the buyer if they (also) reach a specific group of customers or customers in a specific territory are considered active sales to that group of customers or customers in that territory."
[9] Le LGCPoint 51 defines passive sales as: 'the response to unsolicited orders from individual customers, including the delivery of goods or the provision of services to such customers. Passive sales are advertising actions or promotions of a general nature that reach customers within the (exclusive) territories or customer groups of other distributors, but which are a reasonable way to reach customers outside those territories or customer groups, for instance to reach customers within one's own territory. General advertising or promotions are considered a reasonable way to reach such customers if it is attractive for the buyer to make such investments even if they do not reach customers within the (exclusive) territory or the (exclusive) customer group of other distributors
[10] LGC No. 52
[11] C-439/09, Pierre Fabre of 13.10.2011.
[12] C-230/16, Coty Germany of 6.12.2017.
[13] https://www.bbmpartners.com/news/La-decisione-Guess-della-Commissione-Europea-Una-prima-analisi
[14] Please refer to Dr. Thume's "Paralleler Online-Vertrieb des Herstellers im Spannungsfeld seiner Dispositionsfreiheit und Treuepflicht', Betriebs-Berater, 15.2018, p. 770.
[15] This means that the application of such a system to product types that are not "adequate'", entails the risk of a (albeit hypothetical) withdrawal of the exemption by the Commission, i.e. by the Supervisory Authority, for agreements with effects exclusively on the internal market. On this topic see Pappalardo, Il diritto della concorrenza dell'Unione Europea, 2018, p. 405, UTET.
[16] Orders of 19 November 2018 and 18 December 2018 of the Court of Milan. https://sistemaproprietaintellettuale.it/notizie/angolo-del-professionista/13754-distribuzione-selettiva-di-cosmetici-di-lusso-il-tribunale-di-milano-chiarisce-i-presupposti-per-l-esclusione-del-principio-dell-esaurimento-del-marchio.html
Selective distribution. A brief overview: risks and benefits.
Certain products, depending on their intrinsic characteristics (e.g. the luxury sector, i.e. technically very complex products), often require a more select and careful resale system than consumer products.
In such cases, the manufacturer is inclined, not so much to focus on the vastness and capillarity of its sales network, as to favour a restriction of commercial channelsThey prefer to entrust their products to a small number of specialised dealers, chosen according to certain objective criteria dictated by the nature of the products: professional competence (as far as would-be distributors are concerned),[1] quality of the service offered, i.e. prestige and care of the premises in which the dealers are to carry out their activities.[2]
1. Definition and brief overview.
Selective distribution refers precisely to a distribution system in which products pass exclusively from the hands of the manufacturer to those of authorised dealers, i.e. to those intermediaries who comply with the form and quality requirements of the manufacturer. The EU Regulation 330/2010 on Vertical Agreements For this purpose, it defines selective distribution as:
"a distribution system in which the supplier undertakes to sell the contract goods or services, directly or indirectly, only to distributors selected on the basis of specified criteria and in which these distributors undertake not to sell such goods or services to unauthorised resellers in the territory reserved by the supplier for that system."
According to the Court, a selective distribution is in conformity with Art. 101 § 3 of the Treaty (and does not fall under general prohibition laid down in § 1 of that Article), essentially if there are three fundamental principles:
- "the choice of dealers is made according to objective criteria of a qualitative nature, concerning the professional qualification of the dealer, his staff and his facilities'.,
- which "these requirements are demanded indiscriminately for all potential resellers".,
- and that "are assessed in a non-discriminatory manner".[3]
In certain cases, the manufacturer may add a further barrier in the selection of those who can join its selective network, as it may consider imposing an additional quantitative restrictionthus opting not to automatically admit to the network all retailers presenting the standards required, but also by limiting the number of recognised entities, often calibrated to take into account the economic potential of the different markets where the contractual products are sold.[4]
The European Court of Justice has granted the exemption for quantitative selective distribution systems, recognising that the restriction has the character of indispensability required by Article 101 § 3 of the Treaty, by virtue of a predominantly economic principle: it has held that such a distribution system is lawful whenever admission to the selective system of all qualified resellers has a negative impact on the profitability of the sales network, since "would reduce the sales possibilities of each of these to a few units per year."[5] We recall here briefly the Case Vichy,[6] in which the manufacturer had reserved the products only for pharmacies for certain cosmetic products.
This was due to the fact that in some countries access to the profession of pharmacist was subject to a closed number. Still the Guidelines on Vertical Restraints (n. 175)[7], make it part of the quantitative restriction, the imposition on the supplier to make a minimum turnoverset by the provider, thus indirectly limiting access to the network to all those who fail to reach the set turnover threshold.
With reference to the type of products for which the use of a selective system may be justified, Regulation 330/2010 makes no mention of this, as it merely gives a definition of such a system. In any case, an answer can be found in the Commission's Guidelines, where at no. 176, it is stated that:
"if the characteristics of the product do not require selective distribution [...], such a distribution system does not generally lead to efficiencies that outweigh a significant reduction in intra-brand competition. If appreciable anti-competitive effects occur, it is likely that the benefit of theblock exemption is revoked".
It can, therefore, be said that selective distribution is reserved only for high quality and technologically developed products; this means that the application of this system to product types that are not "adequate'"The risk of (albeit hypothetical) withdrawal of the exemption by the Commission, or the Authority, for agreements with effects exclusively on the internal market.[8]
Let us now briefly analyse what are the peculiarities of a selective distribution system.
2. Selective distribution and prohibition of selling to outsiders.
The first element is certainly related to the fact that in a distribution system, the producer may impose an obligation not to sell to parties (other than end users) outside the network (Art. 4 (b) (iii)).[9]
This advantage, however, is counterbalanced by the prohibition imposed on the provider by Art. 4(c) to restrict the freedom to make "sales active and passive to end users by members of a selective distribution system operating in the retail trade.'
This prohibition differs from what is normally provided for, formerly Article 4 (b) (i), for distribution systems not selective, which allows the supplier to prohibit its dealers from selling only into territories or groups exclusively reserved for other intermediaries.
Having said that, it should be noted that very often in practice many manufacturers distribute 'selectively' only in the most important markets, while reserving a 'classical' system (i.e. through an exclusive importer) for the other zones. In such a case, the producer may not impose a ban on passive sales, vis-à-vis resellers belonging to areas where the selective system does not exist, but only prohibit him, pursuant to Article 4 (b) (i), from active sales (on this point see The mixed system: when the manufacturer chooses to adopt both exclusive and selective distribution).
3. Selling on the Internet and selective distribution.
The consequence that in the selective system, a retailer belonging to the network cannot be prevented from promoting products and advertising, outside its area, to end users, certainly has a disruptive effect, especially when combined with sales online (on this topic see also 'Can a manufacturer prevent its distributors from selling online?"): it is clear that, given the transversal nature of internetallowing a retailer to sell outside its territory has a very important impact (just think of the complexity of managing a pricing policy). If this is coupled with the fact that with the new Regulation 302/2018 on the so-called. Geoblockingthe EU has prevented unjustified geographical blockades based on the nationality, place of residence or place of establishment of customers within the internal market. [10]
This has prompted many manufacturers to prohibit the use of internet. On the legitimacy of the manufacturer to prevent its resellers/retailers from selling onlinea rather articulate and very complex European jurisprudential current has developed, the analysis of which would require a very in-depth study. In order to enable the reader to have a broader overview of this topic, the most important rulings of recent years are briefly summarised here.
The first in the 'series' was the Court's 2011 ruling in the case Pierre Fabre, where it was held that an absolute ban on Internet sales, where not objectively justified, constitutes a restriction by object that excludes the application of Block Exemption Regulation 330/2010.[11]
This was followed by the 2017 judgment in the case Coty Germanywhich (also) established the compatibility with Article 101 of a contractual clause
"prohibiting authorised distributors of a selective distribution system for luxury products aimed, primarily, at safeguarding the luxury image of those products from recognisably using third-party platforms to sell the contracted products via the Internet, where such a clause is aimed at safeguard the luxury image of these productsis established indiscriminately and applied in a non-discriminatory manner, and is proportionate to the objective pursued, circumstances which it is for the referring court to verify."[12]
The most recent decision Guess of December 2018, in which the Commission fined the parent company EUR 40 million for imposing a ban on retailers selling contractual products via internet or any other electronic or computer system, without the prior written consent of Guess same.[13]
4. Cross-selling within the network of selective distribution.
Article 4(d) of the Regulation prohibits "the restriction of cross-supplies between distributors within a selective distribution system, including distributors operating at different trading levels".
This provision gives members of the distribution network the freedom to sell to other members of the network; this is to allow, at least within a 'closed' system, maximum freedom of movement.
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[1] Consider the decision Grundig approved in 1985 by the Commission, which required the presence of "qualified personnel and an external service with the necessary technical expertise to assist and advise customers', as well as 'the technical organisation necessary for the storage and timely supply of purchasers'; 'presenting and displaying Grundig products in a representative manner in special rooms, separate from other departments, and whose appearance reflects Grundig's market image'.
[2] On this point, see PAPPALARDO, The Competition Law of the European Union, p. 409, UTET, 2018.
[3] Judgment Metro I25.10.1977 and Case C-31/80, L'Oréal/ PVBA. This orientation was also confirmed by the Commission's Guidelines No. 175, which state that "Selective distribution based on purely qualitative criteria is generally considered to fall outside the scope of Article 101(1) because it does not give rise to anti-competitive effects, provided that three conditions are fulfilled. First, the nature of the product in question must make a selective distribution system necessary in the sense that such a system must be a legitimate requirement, having regard to the characteristics of the product in question, to preserve its quality and ensure its proper use. Secondly, the choice of dealers must be made according to objective criteria of a qualitative nature established indiscriminately and made available to all potential dealers and applied in a non-discriminatory manner. Thirdly, the established criteria must not go beyond what is necessary"
[4] On this point cf. case Omega, Commission Decision of 28.10.1970 and BMW case of 23.12.1977.
[5] Case Omega, Commission Decision of 28.10.1970
[6] Vichy case, Commission decision of 27.2.1992
[7] "Quantitative selective distribution adds further selection criteria that limit the potential number of dealers more directly, e.g. by imposing a minimum or maximum level of purchases, fixing the number of dealers, etc."
[8] On this point see Bortolotti, Distribution Contracts, 2016, p. 720, Wolters Kluwer; Pappalardo, The Competition Law of the European Union, 2018, p. 405, Wolters Kluwer.
[9] In this regard, reference is made to what the Court of Justice stated in the case Metro-Saba IJudgment of 25.10.1977, at para. 27 ".Any sales system based on the selection of distribution points inevitably implies - otherwise it would make no sense - the obligation for wholesalers who are part of the network to supply only authorised retailers.
[10] With the new regulation 302/2018 on the CD. geoblockingregulation on measures to prevent unjustified geographical blocking and other forms of discrimination based on the nationality, place of residence or place of establishment of customers within the internal market. This regulation (mentioned here only briefly), aims to prevent unjustified geographical blockades or other forms of discrimination based directly or indirectly on the nationality, place of residence or place of establishment of customers: the regulation does in fact remove the blockade, but does not oblige customers to sell outside their own country or to have the same prices for the whole of Europe.
[11] Case Pierre Fabre, judgment of 13.10.2011
[12] Case Coty Germany, judgment of 6.12.2017.
[13] https://www.bbmpartners.com/news/La-decisione-Guess-della-Commissione-Europea-Una-prima-analisi
Agent's severance pay. How is it calculated if AEC does not apply?
In cases where no Collective Bargaining Agreements apply to the agency relationship, understanding whether (and how much) severance pay is due to the agent is not at all easy.
In contrast to AECs, which provide for a precise calculation allowing the parties to quantify the severance payment, the Civil Code only provides a ceiling for the level of indemnity, without giving precise guidelines on the method of calculation
Severance pay was introduced at European level by the Directive 86/653EECthen transposed into our legal system most recently with the reform of Legislative Decree 65/1999, which amended the current text of Article 1751 of the Civil Code, which provides as follows:
"Upon termination of the relationship, the principal is obliged to pay the agent an indemnity if the following conditions are met:
- The agent has procured new customers to the principal or has appreciably developed business with existing customers;
- The principal still receives substantial advantages arising from business with such customers;
- The payment of this allowance is fairtaking into account all the circumstances of the case, in particular the commissions that the agent loses and that result from business with such customers."
The judge must therefore, in the first analysis, find on the basis of the preliminary findings, whether the agent has increased the agent's clientele and/or business and, therefore, determine what amount should be owed to the agent, judging according to equity.
In cases where no Collective Bargaining Agreements apply to the agency relationship, understanding whether (and how much) severance pay is due to the agent is not at all easy.
Contrary to the AEC, which provide for a precise calculation that allows the parties to quantify the severance payment, the Civil Code only provides for a ceiling for the level of indemnity, without providing precise guidelines on the method of calculation
- Read also: Severance Indemnity: Art. 1751 of the Civil Code and AEC compared.
The following is a brief analysis of the criteria set out in the Civil Code.
1. The agent's contribution of customers.
The termination indemnity pursuant to Article 1751 of the Civil Code is undoubtedly intended to reward the principal's activity of promoting and developing customers. For this reason, the following must be considered excluded from the scope of applicability of this rulerecruitment and coordination of agentssince the latter, although relevant and very important from an organisational point of view, is only instrumental and ancillary in nature with respect to customer enhancement.[1]
Following this reasoning, not even the mere increase in turnover by the agent can be considered sufficient to prove the acquisition of new customers or the substantial development of those already existing at the beginning of the relationship:[2] it is not sufficient for the agent to prove (cf. Burden of proof in the agency contract) the increase of its commissions over the years, if it also does not diligently indicate the new customers it has brought in. This is stated in case law:
"the request for payment of the indemnity pursuant to Article 1751 of the Civil Code cannot be granted in the event that the applicant generically acknowledge on appeal of the recurrence of the relevant prerequisites, however failing to deduct precisely the volume of business handled for each individual customeras well as to specify the business concluded, the total value of the contracts, any increase over the business concluded with the same client in the preceding year, omitting altogether to indicate which clients he personally took care of."[3]
And again:
"The agent acting pursuant to Art. 1751 of the Civil Code must first prove that he has brought new customers to the principal, or at least that he has increased the turnover of customers who, prior to the commencement of the agency relationship, were already doing business with the principal."[4]
As for the definition of 'new customer", it should be recalled that in 2016 the European Court of Justice,[5] questioned whether it was possible to recognise as such, legal entities which, prior to the granting of the agency mandate, had already established business relations with the principal, but for products different from those covered by the agency contract. In the present case, the agent had received a mandate to sell spectacle frames of different brands from those that had already been marketed by the principal; the Court was therefore asked whether the sale of such new products to existing customers could fall within the civil law definition[6] of 'new client'. The Court stated that;
"are to be regarded as new customers within the meaning of that provision, even though they already had business relations with the principal with respect to other goods, if the sale of the first goods by the agent has required to enter into specific business relationshipswhich it is for the referring court to ascertain."
2. Advantages for the principal arising from the agent's activity.
The second condition laid down in Article 1751 of the Civil Code is that "the principal still receives substantial benefits from doing business with such customers." When analysing this condition, one must certainly understand to which time period reference must be made to verify the existence or non-existence of advantages. According to the best doctrine[7] the wording of the law is quite clear and refers to the situation existing at the time of the termination of the relationship; case law, on the contrary, is not unambiguous on this point, and there is an opposite orientation, which deems it necessary to verify whether the advantages subsist and continue also in subsequent years and, in this sense, excludes the indemnity if the agent is not able to prove judicially the 'retention' of customers even after the termination of the relationship.[8]
Certainly, the agent cannot be negatively affected by the principal's personal choice to opt for transferring the company to others (for a price undoubtedly determined not only by the trade mark, but also by the goodwill, essentially consisting of the customer portfolio), unless, of course, it is established that the increase in customers was due to factors external to the agent.[9]
On the other hand, the condition must be deemed to be fulfilled if the contracts concluded by the agent are contracts of durationas the development of goodwill and the benefits to the principal, even after termination of the relationship, are in re ipsa.[10]
3. The determination of severance pay in equity.
Once the existence of the first two requirements has been ascertained, the judge will have to quantify the allowance in equity. As mentioned above, for the purposes of determining the quantumthe judge is bound to verify compliance with the requirement of equity prescribed by Art. 1751 of the Civil Code, taking into account all the circumstances of the case and in particular the commissions that the agent loses and that result from business with those customers.
It is interesting to note that, while the law clearly identifies the requirements for the agent to be granted the indemnity, for the quantification in equity, the normative reference is not exhaustive and concerns all "the circumstances of the case', identifying, by way of example only, the reference to commissions that the agent loses and that result from business with customers.[11] In this regard, case law holds that the judge must:
"have regard to all those elements that are suitable for an adequate personalisation of the quantum due to the agent"[12] e "may or may not be considered 'fair'in the sense of also compensating for the special merit of the agent emerging from the [emerging] factual circumstances."[13]
"If it does not consider it fair, in the absence of a specific regulation, it must award the agent the differential necessary to bring it back to fairness. "[14]
It is clear that equity is a principle that is difficult to apply in practice. It follows that the non-application of the AEC to the relationship certainly entails greater uncertainty as to the quantification of the severance payment, since this is ultimately left to the sensitivity of the individual judge.
It is also important to recall that the one referred to in Article 1751 of the Civil Code is a typical case of judicial equity and as such can only be criticised in the court of legitimacy from the point of view of the logic and congruity of the reasoningbut not in its amount.[15]
4. Severance pay calculated on the basis of the criteria set by the Commission.
From the above analysis, it appears that the approach of the European directive, which only provides a ceiling for the level of indemnity, without providing precise guidelines as to the method of calculation, has and continues to create great uncertainty. It is clear, therefore, that a clear and precise method, perhaps developed by national jurisprudence, would lead to greater legal certainty, with benefits for both contracting parties.
This issue was also encountered by the same European Commission in its report of 23/7/1996which, aware of this regulatory limitation, prepared a report aimed on the one hand at analysing how European case law has approached this interpretative issue and on the other hand at providing a solution to the member states.
A solution would have been found in the German model (and in particular §89b of the HGB from which the legislation was inspired), taking into account the fact that since 1953 it has provided for the payment of a surplus value allowance, which has given rise to extensive case law regarding the calculation of the latter.
The Commission report goes into detail to analyse the calculation model developed by German case law, to which reference is made in full. For what it is worth, it is important to emphasise the fact that the system developed by German case law was then used as a model for the drafting of AEC calculations and that, therefore, the same system, although very complex, is not completely alien to us.
The Commission, after having analysed the calculation method in an analytical manner, concludes by noting that the model developed by German case law can nevertheless be used as a model to be applied, as this "facilitate a more uniform interpretation of this article."
Italian jurisprudence has, in any case, very rarely followed this model (perhaps also because it was not pushed by the parties' advocates), which at the moment remains almost completely unknown; in any case, there are a number of judgments on the merits that have shared the Commission's position, which deemed it appropriate to quantify the severance indemnity on the basis of the calculation criteria established by the European Commission in its report of 23/7/1996 on the application of Article 17 of Directive 86/653/EEC. [16]
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[1] Cass. Civ. 2018 No. 25740.
[2] On this point see also Bortolotti, Distribution Contracts, p. 386 ff., 2016, Wolters Kluver.
[3] Court of Milan 26.7.2016.
[4] Court of Bari 12.2.2014.
[5] Judgment of 7.4.2016, Case C-314/14, Marchon v. Karaskiewicz
[6] To be more precise, in the definition of 'new customer', of which Article 17 of the European Directive 1986/653 on commercial agentsby Article 4, Legislative Decree No 303 of 10.9.1991, which amended Article 1751 of the Civil Code and replaced it by Article 5, Legislative Decree No 65 of 15.2.1999.
[7] Bortolotti, Distribution Contracts, p. 388.
[8] See Court of Padua 21.9.2012 where the indemnity was denied for lack of orders following the dissolution of the relationship; to the contrary Cass. Civ. 2013 no. 24776 ".Moreover, the utility for the principal is to be assessed at the time of termination of the relationship, the crystallisation of the results obtained by the agent at that time being of relevance. "
[9] Cass. Civ. 2013 no. 24776.
[10] Cass. Civ. 2013 no. 24776.
[11] See Cass. Civ. 2018 no. 21377, Cass. Civ. 2008 no. 23966.
[12] Cass. Civ. 2016 No. 486.
[13] Cass. Civ. 2014 No. 25904.
[14] Court of Appeal Florence 4.4.2012.
[15] Cass. Civ. 2018 No. 25740.
[16] Court of Pescara of 23.9.2014, with comment by Trapani in Agenti&Rappresentanti di commercio no. 2/2015; Court of Bassano del Grappa of 22.11.2008
Commercial agent and antitrust law: when the agency contract is considered a vertical agreement.
The purpose of this article is to try to understand whether the agency contract can be considered a vertical agreement within the meaning of European Regulation 330/2010 on vertical agreements and, as such, be subject to the prohibition under Article 101(1) TFEU and antitrust law.
As has already been analysed (cf. exclusivity clauses and vertical economic agreements), the Regulation No 330/2010 provides that vertical agreements between undertakings may not have as their object or effect the prevention, restriction or distortion of competition within the common market and that such agreements, if any, are void pursuant to Article 101(1) TFEU.
In this blog, the applicability of the regulation to the exclusive distributors and to the retailers using e-commerce to distribute contractual products. The purpose of this article is to analyse (albeit briefly) an equally complex and interesting topic, namely whether the agency contracts can be considered vertical agreements within the meaning of the Regulation and, as such, be subject to the prohibition under Article 101(1) TFEU; this question is of particular relevance, given that agency agreements normally contain a number of restrictive covenants such as limitations on the determination of price, territory and clientele.
These restrictions are expressly among those defined fundamentals by Article 4 of the Regulation and the presence of which means that the agreement as a whole loses the benefit of the block exemption provided for by the Regulation[1]. The vertical restrictions that would have the greatest impact on an agency contract would certainly be those relating to the prohibition of:
- determination by the purchaser of the resale price;
- determination by the purchaser of the territory or customers to whom the buyer may sell the contract goods or services;
- restriction of sales (active or passive) to end users;
Hence the importance of understanding when an agency contract is to be considered (under the antitrust) as true and when fakeIf the brokerage contract were to be considered (within the meaning of the antitrust) an agency contract fakethe same would fall under the prohibition of Art. 101, with the result that the principal would not be able to impose limits on the agent with regard to the determination of the price (or at least reserve to him the right to grant discounts on his commission), territory, customers and inhibit him from passive sales to customers outside their area. [11]
The first assessment as to whether agreements concerning commercial representation are subject to the prohibition formerly art 101, § 1, goes back to the "Communication Christmas"of 1962[2]The Commission had excluded, in principle, the sales representative from this prohibition, provided that he did not assume '...'.in the performance of his duties (...) no other contractual risk, except the usual guarantee of the star del credere."[3] The Commission considered that the trade representation agreements,
"have neither the object nor the effect of preventing, restricting or distorting competition", since the representative performs in the market ".merely an auxiliary function [acting] in accordance with the instructions and in the interest of the undertaking on whose behalf it carries on business'.
Over the years, jurisprudential orientations have emerged[4] on the basis of which one can basically state[5] that the principle laid down in Art. 101(1) does not apply to commercial agency contracts where:
- the agent does not assume the risks commercial and financial typical of a distributor/dealer;
- the agent is integrated within the structure distribution of the principal;
- the agency contract is not part of a broader framework of contracts falling under Art. 101.
Similarly, in the Guidelines on Vertical Restraints,[6] the characterising element, in order to be able to understand whether or not an agency agreement is subject to the prohibition, is characterised by the risks assumed by the party qualified (correctly or not) as agent:[7] if the risks are substantially borne by the principal, we are in the presence of a true agency agreement, otherwise an agreement liable to incur the prohibition formerly Art. 101, § 1.
The same Orientations Point 16 states that:
"an agreement will generally be considered [...] agency [...] if ownership of the contract goods [...] does not pass to the agent or if the agent does not himself provide the contract services."
In Orientations several examples of risks outside the typical activity of the agent (in the strict sense) are then enumerated, which occur when the agent:
- acquires ownership of the contract goods[8];
- contributes to the costs related to the supply/purchase of goods covered by the contract;
- maintains, at its own cost or risk, stocks of the contract goods;
- assumes liability towards third parties for any damage;
- assumes liability for non-performance of the contract by customers;
- is obliged to invest in sales promotion;
- makes investments in equipment, premises or staff training;
- carries out other activities in the same product market as the one requested by the principal.
The best doctrine[9] (to which we refer for a more in-depth study of the issue briefly reported here) notes that the Commission's considerations in the Orientations regarding the criteria for distinguishing between agents real e fakes are often "misleading"This is partly due to the fact that the general criteria set out in the Orientations have been taken up (mostly) by a series of case law precedents of the European Court of Justice of a very particular character and this has not allowed the Commission to "consider the way in which 'normal' agents operate, of which [the Commission] was not aware [...]; the Commission has identified a number of criteria that are difficult to apply to the reality of 'normal' cross-border agency relationships'. [10]
Hence a situation of grave uncertaintydistinctive criteria indicated in the Orientations may mislead the reader (e.g. judges and national competition authorities) who relies on them, leading them to qualify as fakes agents, intermediaries who de facto (at least from a civil law point of view) perform a typical agency activity.
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[1] The regulation defines categories of agreements for which, even if there is a restriction of competition within the meaning of Article 101(1), they may be presumed to be exempt from its application.
[2] OJ, No. 139, 24.12.1962, p. 2912 ff.
[3] Id. p. 2922.
[4] Case SugarCommission decision of 2.1.1973, case Vlaamse Reisbureaus decision of the Court of Justice of 1.10.1987, case Vag Leasing decision of the Court of Justice of 24.10.1995.
[5] See on this point Bortolotti, Distribution Contracts, p. 674., Wolters Kluwer, 2016
[6] Point 13) of the Orientations: "The determining factor in defining a commercial agency agreement for the application of Art. 101(1) is the financial or commercial risk assumed by the agent in relation to the activities for which it has been appointed as agent by the principal.
[7] See on this point Pappalardo, The Competition Law of the European Union, p. 321 ff. UTET, 2018.
[8] On this point see the case Mercedes Benz decided by the commission in its decision of 10.10.2001, in which the Court of First Instance held that the purchase of demonstration cars and spare parts was not a sufficient element for the agent to be considered a distributor in its own right.
[9] Bortolotti, Distribution Contracts, p. 675 ff., Wolters Kluwer, 2016
[10] Id. p. 675
[11] The Guidelines, point 51, define passive sales as: "the response to unsolicited orders from individual customers, including the delivery of goods or the provision of services to such customers. Passive sales are advertising or promotions of a general nature that reach customers within the (exclusive) territories or customer groups of other distributors, but which are a reasonable way to reach customers outside those territories or customer groups, for instance to reach customers within one's own territory.
General advertising or promotions are considered a reasonable way to reach these customers if it is attractive for the buyer to make such investments even if they do not reach customers within the (exclusive) territory or (exclusive) customer group of other distributors'..
Can a manufacturer prevent its distributors from selling online?
When is it possible to block the online sales of distributors or members of one's own sales network? Active sales, passive sales, geoblocking... Let's have some clarity!
L'e-commerce is undoubtedly a tool with extraordinary potential: it makes it possible to address a very wide range of users, to target offers with great precision at well-defined customer categories, and for the end consumer, let's not forget, it is undoubtedly convenient!
In view of its potential, this tool must be used with great awareness by any entity wishing to operate in the e-commerce sector; a strategy must be carefully worked out marketingIt is necessary to take into account the logistical complexities involved and to comply with increasingly complex and binding regulatory requirements (think only of the privacycertainly made more complex following the entry into force of the GDPR).
Furthermore, given the transversality of the webthe use of e-commerce contributes significantly to making the increasingly transparent prices and this not infrequently clashes with the manufacturer's distribution strategies, often aimed at protecting the brand and creating a pricing policy that is as controlled as possible.
1. The European Commission's analysis of the impacts of e-commerce.
The European Commission recently carried out an investigation into the trade impacts that thee-commerce has on the market and consumers, concluded with the drafting of the "final report on the e-commerce sector enquiry."[1] Here are some insights into the conclusions reached by the Commission:
[Through e-commerce, price transparency has] increased [and] consumers are [...] able to immediately obtain and compare product and price information online and quickly switch from one channel (online/offline) to another."[2]
[...]
The ability to compare product prices between different online retailers leads to increased price competition for both online and offline sales[3] and alternative online distribution models, such as online marketplaces, have enabled retailers to reach customers more easily [...] with limited investment and effort."[4]
This analysis paints a very effective picture of the reality of sales online, leading increasingly to one:
- greater transparency on prices;
- easier to reach a very large customer base, even beyond the territorial limits possibly imposed by the distributor.
2. Can the manufacturer block the online sales of its distributors? Regulation 330/2010.
Aware of these risks, the manufacturer, in order to defend its strategy, often decides to impose limits on its distributors' use of this medium, prohibiting them from selling online (sometimes also requiring distributors to apply the same restriction to their buyers), or preventing them from selling online outside the territory assigned to them (on this subject see also The mixed system: when the manufacturer chooses to adopt both exclusive and selective distribution).
At this point, the question arises: can the manufacturer prevent its distributor from selling online?
To answer this question, one must start with theArticle 101(3) of the Treaty on the Functioning of the EU (TFEU). This rule ban agreements and concerted practices of enterprises "which have as their object or effect the prevention, restriction or distortion of competition within the common market"This prohibition includes agreements that prevent the distributor from selling to customers domiciled outside the territory.[5]
In any case, European legislation derives specific exceptions which are fixed in the Regulation No 330/2010 concerning the so-called '.vertical agreements', i.e. agreements for the distribution and supply of goods or services concluded between undertakings each operating at a different level of the production or distribution chain. This regulation must be interpreted and supplemented in the light of the Commission Guidelines (LGC), published on 20 April 2010, which, among other things, expand on the topic of restrictions on e-commerce.
The European legislation referred to above prohibits theArticle 4 of the Regulation agreements that prevent the distributor from selling to customers domiciled outside the territory. In any event, in order to prevent a manufacturer from dividing its network of distributors into different territories, it allows restrictions only on the so-called '.active sales"[6] in the exclusive territory or to the exclusive customer base of the supplier, while not allowing the so-called '.passive sales. "[7]
As for the online salesthe Guidelines (point 52) specify that they are generally to be regarded as "passive", with the consequence that, in principle, no distributor may be prevented from using internet to sell their products. In particular, it is made express prohibition to negotiate agreements whereby the distributor agrees to:
- redirecting consumers to the site internet of the manufacturer or other distributors with territorial exclusivity;
- interrupting transactions online of consumers following the ascertainment of their geographical area of residence through their credit card data;
- limit the proportion of total sales made via internet;
- pay a higher price for products intended for resale online compared to those for traditional outlets (para. 52 LGC).
It is therefore not possible to prevent a distributor or retailer from setting up its own site for sales onlinelet alone use digital platforms (e.g. Amazon, E-bay, Alibaba, etc.) for marketing.[8] The manufacturer can find its products online, supplied by the distributor or by the shop itself supplied by the distributor, without being able to prevent this process, let alone control it (on this topic see also article "Exclusivity clauses and vertical economic agreements in the European context: e-commerce and territorial exclusivity"by colleague Vittorio Zattra).
The distributor, by the way, will not be obliged to accept all orders from customers outside its territory: in order to avoid the risk that foreign customers might assume that the offer is directed at them, for the sole reason that they have visibility of the offer on their device, it is advisable to indicate directly on the site that the offer does not concern sales involving the delivery of goods abroad. This clause is also in line with the new regulation 302/2018 on the CD. geoblockingon measures to prevent unjustified geographical blockades and other forms of discrimination based on the nationality, place of residence or place of establishment of customers within the internal market.
This regulation (mentioned here only briefly), aims to prevent unjustified geographic blockades or other forms of discrimination based directly or indirectly on the nationality, place of residence or establishment of customers: the regulation in fact removes the blockade, but does not oblige customers to sell outside their own country or to have the same prices for the whole of Europe.[9]
3. Court of Justice rulings on online sales.
3.1. The Pierre Fabre Case.
However, the Court of Justice in the case Pierre Fabre C-439/09 decided that the absolute ban on the use of internet imposed by a manufacturer on a distributor, constitutes a restriction that is not in line with the provisions of Regulation 330/2010, provided that the manufacturer demonstrates that this prohibition does not is objectively justified.
One (other) question arises: when is such a restriction justifiable and to what extent?
3.2. The Coty Germany GmbH case.
The Court in its recent judgment of 6 December 2017, C-230/16 Coty Germany GmbH clarified that in a system of selective distribution[10] of luxury products, a manufacturer (in this case Coty) is authorised to impose a clause on its distributor allowing it to sell the products via internet, but on condition that such sales activity online is realised through an 'electronic shop window' of the authorised shop and that it is thus preserved the luxurious connotation of the products.
In that case, the Court decided that a clause preventing the dealer not so much from using internet to sell/promote the goods purchased from the manufacturer, but to market them through digital platforms such as Amazon and the like. This is because the quality of the products:
"results not only from their material characteristics, but also from the style and image of prestige that gives them an aura of luxury, because such an aura constitutes an essential element of these products in order for them to be distinguished by consumers from other similar products."
In conclusion, it can be said that the manufacturer/supplier, once it has authorised a distributor to handle its goods, may not prevent the latter from using e-commerce to sell them also beyond the pre-established boundaries, invading the exclusive territory reserved for other distributors, provided that the end customer's request can be considered as spontaneous and not specifically solicited by the distributor.
There is also the possibility for the supplier to impose, in any case, on its distributors certain quality standards for the presentation of products, or specific sales methods consistent with its distribution system, provided that these conditions do not directly affect the quantity of goods marketable via internet or on the prices practicable on that platform.
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[1] Report from the Commission to the Council and the European Parliament, Final Report on the E-Commerce Sector Inquiry, 10.5.2017.
[2] Id. No. 11
[3] Id. No. 12
[4] Id. No. 14
[5] On this point See Bortolotti, Distribution Contracts, Wolters Kluwers, 2016, p. 746 ff.
[6] The LGCs, paragraph 51, define active sales as: "active contact with individual customers, e.g. by mail, including by sending unsolicited e-mails, or by visits to customers; or active contact with a specific group of customers, or with customers located in a specific territory through advertisements in the media or via the Internet or other promotions specifically addressed to that group of customers or to customers in that territory.
Advertising or promotions that are only attractive to the buyer if they (also) reach a specific group of customers or customers in a specific territory are considered active sales to that group of customers or customers in that territory. "
[7] The LGCs, paragraph 51, define passive sales as: "the response to unsolicited orders from individual customers, including the delivery of goods or the provision of services to such customers. Passive sales are advertising or promotions of a general nature that reach customers within the (exclusive) territories or customer groups of other distributors, but which are a reasonable way to reach customers outside those territories or customer groups, for instance to reach customers within one's own territory.
General advertising or promotions are considered a reasonable way to reach these customers if it is attractive for the buyer to make such investments even if they do not reach customers within the (exclusive) territory or (exclusive) customer group of other distributors'..
[8] On this point see Stefano Dindo, E-Wine, Legal-economic aspects of wine communication and distribution online, G. Giappichelli Editore, p. 47, 2018.
[9] On this point see Stefano Dindo, E-Wine, Legal-economic aspects of wine communication and distribution online, G. Giappichelli Editore, p. 41, 2018.
[10] There is no definition of selective distribution, however the Metro judgement, Court of Justice, 25.9.1977, already indicates the criteria for its identification: a) the products must be products whose quality or technological content require a selective distribution system, which safeguards their quality and correct use; b) the choice of distributors is made according to objective criteria of a qualitative nature; c) the defined criteria must not go beyond what is necessary.
Agent and/or Area Manager? A brief overview.
When a company intends to organise its sales network in a structured manner, it often needs to rely not only on a plurality of agents, but also to ensure that they are among themselves organised hierarchically and are coordinates by a supervising person: the area manager.
The function of coordinating sales agents is often assigned by the company to a Area Manager (also known as area manager or area coordinator/supervisor), who is entrusted with a wide variety of tasks: he/she may be required to support the agents at the beginning of the relationship and supervise their work; coordinate the sales network in the assigned area, which may be composed of both agents and direct salespeople or resellers; or select and recruit agents, thus creating/implementing a distribution network within the assigned area.
Given the multiplicity of functions that can be attributed to an Area Manager, this figure is not easily framedMoreover, despite the highly strategic role it plays, the importance of properly delineating the relationship is frequently underestimated, with an awareness of what could be the risks associated with an ill-considered management.
1. Area manager: self-employed or commercial agent?
Before starting to establish the relationship, it should be clear how one intends to include this figure in the company's distribution network: employee, self-employed, or commercial agent?
One should ask oneself these questions not only before contracting the collaboration, but also during the development phase: it often happens that an Area Manager, classified as an agent, after the relationship is closed, claims the subordinate natureasserting (and proving) that the collaboration has always presented the typical characteristics of employment[1]. In the event of a dispute, it is common ground that, regardless of what the name iuris which the parties conferred on the relationship, the judge is called upon to frame it according to the manner in which the parties actually 'experienced' it (on this point cf. differences between agent and employee).
It follows that the creation of a hierarchical pyramid structure, structured in such a way as to strongly affect the Area Manager's autonomy of choice, may entail the risk that a (often unwanted...) relationship of a subordinate nature is established between the parties.
Among the elements characterising the subordinate nature of cooperation, there is, for example, the imposition on the Area Manager of excessively stringent visiting obligations, the giving of constant instructions on the management of the agents coordinated by him, or an obligation to report very frequent.[2]
The Court also held to be in the nature of a subordinate employment relationship, that of an Area Manager classified as an agent, but who performed almost no direct promotional activity, limiting himself to coordinating and directing the agents subordinated to him. He was remunerated with a monthly fixed sum, qualified as an advance on commissions, against commissions that were in fact practically nil (Lire 5,400 in 10 months of activity).[3]
In contrast, the Court ruled out the subordinate nature of the relationship of a coordinator of a group of commercial agents, where the parties had agreed on a monthly advance payment, to be balanced with the commissions actually accrued, in addition to a share of the commissions that the commercial agents of the group under his coordination would have accrued. The Court recognised in this structure both the actual activity of coordination, but also that of promotion, typical of the agent, with the allocation to the latter of a
"risk in the activity of the [agent]represented by the insecurity of commission level. "[4]
If the typical characteristics of subordination briefly set out above do not exist, it must first be clarified that the activity of Area Manager is not incompatible with that of commercial agent[5]However, if he only performs the activity of coordination/supervision, without actually promoting sales in the area entrusted to him, he cannot be classified as an agency.[6]
This principle is constantly reaffirmed by case law, which states that the activity of promoting the conclusion of contracts, which constitutes the agent's typical obligation under Article 1742 of the Civil Code, cannot consist in a mere activity neither of mere control, nor of "propaganda"even if this results in an increase in sales (see also: Obligations of the Agent. Is a simple propaganda activity sufficient?). On this point we read:
"The activity of promoting the conclusion of contracts on behalf of the principal, which constitutes the agent's typical obligation, [...]. cannot consist of a mere propaganda activityfrom which an increase in sales can only indirectly be derived, but must consist in persuading the potential customer to place orders for the principal's products, since it is precisely with regard to this result that the agent is awarded the remuneration, consisting in the commission on the contracts concluded through him and successfully concluded.[7]
In any event, promotion activity should not be understood solely as the activity of seeking out the end customer, who may also have been acquired on the principal's instructions (or in any other way),
"provided there is causal link between the promotional work performed by the agent vis-à-vis the client and the conclusion of the transaction to which it relates the request for commission (Applying these principles, the S.C. upheld the contested judgment that had excluded the existence of an agency contract between the parties, given that the appellant had the task of creating a commercial network by recruiting and training agents, as well as carrying out propaganda and support activities for them, without, however, having any influence on the individual deals concluded by the agents themselves with customers). (Cass. Civ. 2018, no. 20453)
Therefore, strictly speaking, since the activity of controlling and coordinating agents is not an '.promotion"of concluding contracts, the Area Manager who only performs that task cannot be considered to be a commercial agent.[8] In order to classify the Area Manager as a commercial agent, he will have to combine coordination activities with the promotion of business directly, i.e. in cooperation with the agents assigned (or selected by him);[9] It will certainly be easier to consider it an agent where the second activity is, if not predominant, at least significant.
2. The ancillary nature of the office of area manager.
That being said, in the event that the Area Manager predominantly carries out promotion activities and is therefore classifiable as an agent, the coordination activity has accessory naturethan that of agent. On this point, the Supreme Court has ruled on several occasions: [10]
"the relationship between agency contract and ancillary supervisory assignment must be reconstructed through the scheme of the negotiated link, with unilateral dependence bond. "
Given the ancillary nature of the coordinator's relationship with respect to that of an agent, one of the main consequences of this unequivocal interdependence is that in the event of termination of the main contract (agency), the ancillary contract (coordination) will follow
"the fate of the main contract to which it accedes [11][...].
Conversely, in the event of revocation of the ancillary contract (i.e. that of coordinator),
"precisely because it relates to a contractual relationship distinct from that of agency, it cannot have any effect on the latter, either from the point of view of the alleged failure of the revoking principal to fulfil its obligations under the agency contract, or from the angle of an alleged lack of interest on the part of the same principal in the continuation of the agency relationship[11]. "
Direct (and far from secondary) consequences of the accessory nature of the Area Manager position as opposed to the agency contract are essentially two:
- the parties may agree not to make the revocation of this assignment subject to any notice period (which, however, is expressly prohibited for the agency contract (cf. Early termination of an agency contract. How is the indemnity for lack of notice calculated?);
- i fees accrued by the Area Manager are not of a commission nature and, therefore, do not fall within in the calculation for quantifying theseverance pay.
2.1. The obligation to give notice and the corresponding indemnity.
With reference to theobligation to give notice (and consequent entitlement to compensation for loss of notice) in the event of termination of the appointment as Area Manager only, the Court:
"ruled out the possibility of a general rule of the system which, in contractual relationships of indefinite duration, would require the grant of a notice period (or the payment of the indemnity in lieu of notice) in every case of termination by one of the parties, unless there is a contractual derogation excluding such an obligation on the withdrawing party", and that this is to be inferred from the fact that only for some typical types of long-term contracts does the law make the validity of the termination conditional on the other party being granted a period of notice, and subject, in any event, to the assessment of whether the duties imposed by Articles 1175 and 1375 of the Civil Code in the performance of the contract."[11]
2.2. Area managers and quantification of severance pay.
As for theseverance pay:
"the claim [...] that the rules laid down in Article 1751 of the Civil Code for the basic agency contract should be applied to the ancillary assignment has no legal or even contractual support."
The ancillary nature of this relationship, from which a compensation non-contributory, which does not affect either the notice allowance or the severance pay, is also indirectly apparent from a reading of the AEC. Article 6 para. 4 of the AEC Industry 2014, in fact states that:
"In the event that the agent or representative is entrusted with the task of coordinating other agents in a certain area, provided that this is specified in the individual contract, a separate commission or a specific additional remuneration, in non-commissionable form, shall be established."
Article 4(11) of the AEC Commerce 2009 extends this regime to all ancillary activities carried out by the agent:
"In the event the agent or representative is entrusted with the continuous task of collecting on behalf of the principal, with the agent's liability for accounting errors, or of performing complementary and/or ancillary activities with respect to the provisions of ss. 1742 and 1746 of the Civil Code, including those of coordinating other agents in a certain area, provided that they are specified in the individual contract, a specific additional remuneration, in non-providential form, shall be established."
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[1] See on this point Cass. Civ. 2004, no. 9060.
[2] On this point see Perina - Belligoli, Il rapporto di agenzia, G. Giappichelli Editore, 2014, p. 21 et seq.
[3] Cass. Civ. 1998, no. 813.
[4] Cass. Civ. Cass. 2002, no. 17534.
[5] Cass. Civ. 1990, no. 2680 "The agency relationship - which is of an autonomous nature - is not incompatible [...] with the agent's obligation to visit and instruct other employees, with the fact that the principal has several agents organised hierarchically, with the principal's obligation to reimburse certain expenses incurred by the agent, nor with the agent's obligation to report daily to the principal."
[6] In doctrine on this point see Bortolotti, Distribution Contracts, Wolters Kluvers, 2016, p. 109. See also Tassinari&Sestini, Area manager in sales agent format, are you in?
[7]Tribunale Vicenza, 22.3.2018, concurring also Cass. Civ. 4.9.2014 no. 18690.
[8] In Doctrine, Bortolotti, op. cit, p. 109.
[9] Cass. Civ. 2007, no. 18303 "Although the "nomen iuris" assigned by the parties to a contract is irrelevant, nevertheless for the purposes of reconstructing the intention of the parties, according to the rules of Art. 1362 et seq. of the Civil Code, the qualification is also part of the words used and contributes to offering elements for reconstructing the common intention of the contracting parties.
In particular, since it is necessary to verify the correspondence of the "nomen" with the negotiated content, both the agent's carrying out of the promotional activity by availing itself of other coordinated and supervised agents and the lack of a formal and express indication of the area in which the agency is to be carried out must be deemed compatible with the legal notion of agency, where such indication is otherwise inferable from the reference to the territorial area in which the parties operate at the time of the establishment of the relationship. (Rejected, App. Trieste, 8 October 2004)"Cass. Civ. 1998 no. 813; in Dottrina Perina - Belligoli, op. cit., p. 22.
[10] Cass. Civ. 2005, no. 19678.
[11] Cass. Civ. 2018, no. 16940; Cass. no. 14436, 2000.
Business intermediary and commissions: when the right to commissions is subject to the communication of commencement of activity
In a recent ruling, the United Sections of the Court of Cassation affirmed that a person who engages in the activity of business intermediary without having communicated the commencement of business is obliged to repay the commissions received to the contracting parties.
The Court's reasoning is very complex and tortuous due to a very tortuous and non-linear regulatory framework.
In order to understand the reasons that prompted the United Sections to affirm that a business intermediary's right to commissions is subject to the obligation to commence business, it is necessary to take a few steps back and retrace what has been the regulatory path governing a figure very similar to the business intermediary, namely the broker, and thus understand how such regulatory interventions may have had such serious repercussions on business intermediaries.
1. The abolition of the role of mediators.
Until 2010, the role of mediators was governed by Article 2 of Law 1989/39, which imposed compulsory registration on all persons who carried out mediation activities, even if on a discontinuous or occasional basis. The role was divided into three sections:
- one for real estate agents,
- one for commercial agents and
- one for agents with a mandate for pecuniary interest.
Art. 73 of Legislative Decree 26.03.2010, no. 59 repealed theArticle 2 of Law 1989/39, thus going to abolish roles listed above.
Following this legislative change, the performance of the activity of real estate broker is only conditional on the:
- DIA (Dichiarazione Inizio Attività) - now SCIA (Segnalazione Certificata di Inizio Attività) - accompanied by self-certifications and certifications proving possession of the requirements;
- verification of requirements by the territorially competent Chamber of Commerce and consequent registration of brokers in the RI (Register of Companies) if the activity is carried out in the form of a company, or in a special section of the REA (Register of Economic and Administrative News).
Given that Legislative Decree 2010/59 abolished the role of mediators, but did not repeal Law 1989/39 in its entirety, the question arose as to how Article 6 of this regulatory text, which subordinates the mediator's right to commissionto its proper registration. Article 6 reads as follows:
"only those who are registered on the rolls are entitled to the commission".
Majority Jurisprudence[1] has ruled, stating that only brokers who have reported the start of their activity to the competent Chamber of Commerce and have been duly registered in the business registers or directories kept by that body are entitled to receive the commission. It reads, in fact, that:
"Article 6 of Law No. 39 of 1989, according to which , must be interpreted as meaning that, also for mediation relationships subject to the rules laid down by Legislative Decree No. 59 of 2010, only mediators who are registered in the registers of companies or in the directories kept by the chamber of commerce are entitled to commission. "
2. Difference between business intermediary and broker.
That being clarified, the question arose as to whether only brokers should be subject to this reporting obligation, or also business intermediariesde facto brokering activities.
Before giving an answer to this question, it is necessary to briefly understand the distinction between mediator and business procurer. Pursuant to Art. 1754 of the Civil Code, mediatoris the one who
"brings two or more parties together for the conclusion of a transaction, without being linked to any of them by a relationship of collaboration, dependence or representation".
The mediator therefore carries out his or her activities without constraints and assignments, in a position of impartiality and autonomy.[2]
In contrast, the business procurer acts as instructed by one of the parties, thus lacking the requirement of independence. A 2016 ruling by the Supreme Court of Cassation, which confirms a well-established orientation, distinguishes the two figures by asserting that:
"mediation and the atypical business procurement contract differ in terms of the position of impartiality of the mediator than that of the procurer who acts on behalf of one of the parties involved in the conclusion of the transaction and from whom, although not linked to that party by a stable and organic relationship (unlike the agent), he may claim remuneration.
The Court goes on to analyse what these figures have in common, namely:
"the element of the provision of an intermediary activity aimed at facilitating the conclusion of business between third parties."
Case law has held that both the figures perform de facto activities of 'brokerage"has framed the business intermediary as an 'atypical' mediator, which is distinguished from the 'typical' mediator precisely by the character of 'partiality'.
Given the inclusion of the intermediary in the 'category of brokers', the following question consequently arose: must the intermediary also comply with theobligation to notify the start of activities? The question was not (and is not) without practical consequences, since, as mentioned above, the failure to report the commencement of activity to the competent Chamber of Commerce causes the broker's right to commissions to lapse pursuant to Article 6 of Law 1989/39.
On this point, the United Sections of the Supreme Court intervened, which with Judgment No. 19161 2017firstly confirmed to be:
"In addition to ordinary mediation, a so-called atypical mediation based on a contract for pecuniary consideration can also be configured with respect to only one of the parties involved (so-called unilateral mediation)."
Secondly, they also stated that:
"precisely because of its extrinsic nature as an intermediary activity, falls within the scope of applicability of the provision laid down in Article 2(4) of Law 39/89, which, precisely, also regulates hypotheses atypical mediation for the case where the object of the deal is real estate or companies."
Conversely, where the subject matter of the deal is the movables:
"the obligation to register exists only for those who perform the said activity in a manner not occasional and therefore professional or continuous."
Therefore, the obligation to register in the brokers' register also extends to all business brokers who broker real estate or companies (even occasionally), or movable goods (on a professional basis).
La penalty for failure to report is rather strict, and is governed by Article 8 L. 1989/39:
Anyone engaging in mediation without being registered shall be punished with the administrative penalty payment of a sum of between one million and four million lire and is liable to the return to the contracting parties of the commissions received."
3. Difference between commercial agent and broker.
At this point, it is considered appropriate to make a very brief analysis of the distinction between commercial agent and brokerwhich is thus summarised by the ruling of the United Sections under examination:
[the mediator] "acts in a third-party position with respect to the contracting parties in contact, in this respect differing from the commercial agent, who, on the other hand, implements a habitual and professional collaboration with another entrepreneur. "
The reason for drawing this distinction is to emphasise the fact that, although the commercial agent is also obliged to report the start of his activity (Art. 74 of Law 2010/59, repealed not only the role of mediators, but also those of agents), failure to comply with this duty does not entail the forfeiture of the right to commissionsis not foreseen in the Law 1985/204which regulates precisely the activity of commercial agents, a sanction similar or comparable to the one examined in this article.
- Read also: Differences between agency contract and business intermediary.
Bearing in mind this substantial difference between an agent and a broker (typical or atypical), it is advisable to check with one's advisor, in the event that a principal contests the payment of commissions to the intermediary for not being registered in the register of intermediaries, whether the activity carried out by the intermediary should actually be considered as such or, on the contrary, should be considered an agency activity 'disguised' as an intermediary activity.
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[1] On this point cf. Cass. Civ. No. 762 of 2014; Cass. Civ. no. 10125 of 2011, Cass. Civ. no. 16147 of 2010.
[2] On this point cf. Cass. Civ. No. 16382 of 2009.
The obligation of exclusivity and the covenant not to compete in the dealer agreement.
The granting of the exclusive right to the concessionaire is an incidental and non-essential element of the contract, cannot be derived implicitly from the predetermination of an 'area' to the concessionaire himselfas there is no necessary connection between the area and exclusive.
The grantor may not prevent exclusive area dealers from making passive sales outside the territory entrusted to them.
1. Sales concession and exclusivity
In a sales dealership relationship, 'exclusivity' is to be understood as the obligation on the part of the grantor to supply only the dealer with certain products in the area entrusted to him.
Although this obligation is one of the most frequently used agreements, it does not constitute an essential part of the agreement and, therefore, is not necessary for the relationship between the concessionaire and the grantor to be considered valid.[1]
Therefore, if the parties have not expressly agreed to it in the contract, it cannot be inferred either that it exists merely because a sales dealership contract has been concluded, or, even less so, because the dealer has been entrusted with an area (it is not at all unusual, in fact, for a dealer to act in a certain area entrusted to him, but without exclusivity).[2] On this point, we read in Jurisprudence that:
"the granting of the exclusive right to the concessionaire, being an incidental and non-essential element of the contract, cannot be derived implicitly from the predetermination of an 'area' to the concessionaire himselfas there is no necessary connection between the area and exclusive. "
However, it is not precluded that the parties may nonetheless prove that such an obligation exists even in the absence of a written contract and prove by witnesses that, for example, such an obligation arises from an oral agreement, or that it is inferred from the actual development of the relationship (cf. on the subject of agency: Burden of proof in agency contracts). On this point, a 2007 ruling by the Court of Appeal of Cagliari held that:
"In a sales dealership, the attribution of the exclusive right to the dealer is an incidental and non-essential element of the contract, but its existence, if the contract is not in writing, may be proven by witnesses and by any other suitable means (in the present case, the existence of the exclusivity clause was inferred, inter alia, from the fact that the parent company refused direct dealings with third parties by referring them to the dealer, from the advertising in the yellow pages and from the lack of other dealers in the area)."
In case the parties have not indicated thescope of application exclusivity, it must reasonably be understood to extend to the entire area entrusted to the dealer; as to the products, however, it must refer to the contractual products.[3]
2. Passive sales outside the territory.
This being said, the question arises as to whether the grantor, who has undertaken to sell certain products exclusively to an exclusive dealer in an area (e.g. Lombardy and Piedmont), may sell the same products to parties outside the territory, knowing that the same parties (potentially) could resell them in the territory of the dealer himself. The Supreme Court, in a more 'dated' orientation, held that:
"the exclusivity agreement entails, with reference to the area covered and for the duration of the contract, a prohibition to perform, not only directly, but also indirectly, services of the same nature as those forming the subject matter of the contract. [...] The prohibition to trade [...] the same products in the reserved area, [...] required the grantor - in accordance with the duty of fairness that constitutes the internal limit of any contractually assigned subjective legal situation - to refrain from any conduct likely to affect the result pursued."
However, this orientation must be updated and 'dropped' into a new regulatory framework, in line with the provisions of the Regulation (EU) No 330/2010 of the European Commission on agreements between companies operating at different levels of the production and distribution chain (vertical agreements).
In particular, Article 4 of the Regulation states that it shall not be unlawful to prevent the purchaser from making active sales in territories or customer groups which the supplier reserves to itself or allocates exclusively to another buyer, provided that the restriction does not also limit sales by the buyer's customers.
To better understand this rule, it is important to make a brief distinction between active sales and passive salesSimplifying, a passive sale can be defined as a 'purchase' in that the initiative is taken by the buyer;[4] active selling, on the other hand, is a consequence of an entrepreneurial strategy and actions of marketing targeted.
In light of the predictions briefly outlined above, a grantor can certainly create an exclusive networkdefining the territories in which their dealers can promote and market their products, but limiting such restrictions to active sales only. The licensor cannot, therefore, prevent exclusive area dealers from accepting and executing passive sales to parties outside the area entrusted to them; what can be excluded and prevented, however, is the area dealer from executing active sales, which are the result of marketing campaigns or commercial strategies carried out outside his territory.
However, the grantor has an obligation to control the network of its concessionaires (unless this obligation is contractually excluded[5]) , being liable for any breaches of exclusivity within its distribution network and, in some cases, even "intervene to counteract the behaviour of other dealers."[6]
Finally, it is emphasised that infringement of the exclusive right:
"constitutes conduct contrary to the duties of fairness and good faith and constitutes a serious breach of contract from which the termination of the contract follows."
3. Sales concession and non-compete obligation
As for thenon-compete obligation by the dealer, it too does not constitute a natural element of the contract and, therefore, in the absence of express provision, the dealer will be free to deal in competing products.[7] As with the exclusivity agreement, the parties may however prove by witnesses the existence of such an obligation.
However, the obligation of the concessionaire to carry out its activity in line with the principle of good faith in the performance of the contract remains unaffected, as it may not carry out any activity that may damage the market, brand and trade of the grantor.
Regarding the duration of the dealer's non-competition agreement, it is not subject to the limits (five years) imposed by Article 2596 of the Civil Code, insofar as it is not applicable to the discipline under examination.[8]
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[1] Appello Cagliari, 11/04/2007; Cass. Civ. 2004 no. 13079; on this point see Baldi - Venezia, Il contratto di agenzia, la concessione di vendita, il franchising, 2014, p. 135, GIUFFRÈ.
[2] Cass. Civ. 2004 No. 13079; Cass. Civ. 1994, No. 6819; Bortolotti, Distribution Contracts, 2016, p. 552, WOLTERS KLUWER.
[3] BORTOLOTTI, p. 553, op. cit.
[4] http://www.impresapratica.com/internet-marketing/vendita-attiva-o-passiva/
[5] Trib. Bologna 4.5.2012.
[6] Cass. Civ. 2003 no. 18743.
[7] BORTOLOTTI, p. 557, op. cit.
[8] Cass. Civ. 2000, no. 1238.
The termination of the sales and/or distribution dealership contract. Brief analysis.
"The sales concession contract is not governed by Italian law and follows the general rules on contracts, with the application of certain principles regarding mandate and administration. If the contract is concluded for a fixed term, it cannot be terminated in advance unless there is a serious breach; if for an indefinite term, it can be terminated unilaterally with due notice. The notice period, if not agreed, is determined on the basis of the duration of the contract and the investments made; if the parties have agreed and contractually quantified notice period is discussed whether theThe judge can make assessments of its appropriateness.
Since the contract of sale concession is not expressly regulated by our law, the general principles provided for contracts apply to it, paying particular attention to the provisions provided for the contract of supply (1559 et seq. civil code) and mandate (1703 et seq. civil code), types of negotiation very close to the one under consideration.
If the concession contract was concluded at fixed-termit will last until its natural expiry and cannot therefore be unilaterally terminated early by either party, except in the case of (serious) breach.[1]
Conversely, if the sales concession contract is of indefinite duration, it may be terminated unilaterally, without the need to invoke just cause, but subject to the granting of a reasonable notice. Doctrine and jurisprudence reach this conclusion, both by analogical application of the principles dictated on the subject of administration (Art. 1569 of the Civil Code).[2] and mandate (Art. 1725 of the Civil Code),[3] but also relying on the general provisions of the law in the area of unilateral termination and applying the principles of good faith under Article 1375 of the Civil Code.
A major problem opens up concerning theidentification of the duration of the noticein all those cases where the parties have not contractually agreed to do so; this may occur not only where the parties have not thought of regulating this issue when drafting the master agreement, but also in the much more complex situation where the relationship between the parties, which started out as a simple buyer-seller relationship, has in fact over time 'transformed' into a full-fledged distribution contract (on this point, see the article Dealer, distributor or regular customer? Differences, characterising elements and interpretation criteria).
In order to understand what is meant by adequate notice and, therefore, to give a time value to this term, reference must be made to the interests of the person who 'suffers' the withdrawal, since the withdrawing party must grant a term that will allow preventat least partially, the negative effects resulting from the termination of the relationship;[4] Therefore, the concessionaire must be able to recover part of the investments made (e.g. the disposal of inventories), while the grantor must have sufficient time to be able to buy back goods still in stock from the concessionaire, so that they can be reintroduced into the distribution circuit.[5]
To give a more practical slant to this issue, we list below some cases decided by case law where it has been held that[6]
- a deadline of 18 monthswith reference to a contract that lasted about 25 years;[7]
- not congruous a deadline of 6 months (later replaced by one of 12 months), for a contract of 10 years' duration;[8]
- reasonable notice of 3 months in connection with a 26-month contract.[9]
In other situations, case law has applied the period of notice required by agency regulations.[10]
If, on the other hand, the parties had agreed and contractually quantified notice periodThe majority of case law is in agreement that reference must be made to that term in any event, even if it is very short, holding that the judge cannot make any assessment of the appropriateness of the notice period agreed upon by the parties.[11]
With reference to this specific issue, i.e. with regard to the reviewability of the notice period agreed upon by the parties, it is certainly important to bear in mind a relevant ruling of the Court of Cassation of 18 September 2009,[12] which established a number of interesting principles. On the merits, the dispute was brought by an association set up by several former car dealers against the parent company Renault, which had terminated the contractual relationship with those dealers by giving one year's notice, in accordance with the contractual provisions; the dealers sought a declaration that the termination was unlawful because abuse of right. These proceedings were dismissed at first and second instance, but upheld at last instance by the Court, which held that it could not be ruled out whether the right of withdrawal ad nutum has been exercised in good faith, or, on the contrary, an abusive exercise of that right may be conceivable. The Supreme Court came to this conclusion through the use of the criterion of objective good faith, which must be considered as "general canon to which the conduct of the parties should be anchored."[13]
This orientation has been challenged by some doctrine,[14] which he considered should be "considered with the utmost caution". This is confirmed by the very fact that:
"at is to be hoped, that the notion of abuse of rights will continue to be applied only in extreme and justified cases."
In contrast, there is no doubt about the validity of the termination in trunkand thus without the grant of notice, in the event of just cause.[15]
As to the inclusion in the distribution contract of a express termination clausedoctrine and jurisprudence agree that it can be validly included in the agreement (contrary to the guidelines on agency contracts).
If the relationship is terminated without cause, the terminating party is obliged to compensate the damage to the person who suffered such an action. For the purpose of calculating damages, account must be taken of the profits that the dealer would have presumably obtained in the remaining part of the contract (on the basis of the turnover history) or of the expenses incurred by the dealer for the organisation and promotion of sales in anticipation of the longer duration of the relationship.
Instead, case law is unanimous in holding that thetermination indemnity in favour of the concessionaire must be excluded and cannot be applied to this type of contract. agency provisions.[16]
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[1] Cass. Civ. 1968 No. 1541; in doctrine Il contratto di agenzia, Venice - Baldi, 2015, p. 139, CEDAM.
[2] It is the unanimous conviction in doctrine that Article 1569 of the Civil Code, relating precisely to the contract of supply, according to which either party may withdraw from the contract without the need to invoke a just cause, may be applied analogically to this case (see on this point I contratti di somministrazione di distribuzione, Bocchini and Gambino, 2011, p. 669, UTET)
[3] Concession of Sale, Franchising and Other Distribution Contracts, Vol. II, Bortolotti, 2007, p. 42, CEDAM.
[4] In doctrine Il contratto di agenzia, Venice - Baldi, 2015, p. 140, CEDAM; In jurisprudence Court of Appeal Rome, 14 March 2013;
[5] I contratti di somministrazione di distribuzione, Bocchini and Gambino, 2011, p. 669, UTET
[6] Distribution Contracts, Bortolotti, 2016, p. 564, Wolters Kluver.
[7] Trib. Treviso 20 November 2015 in Laws of Italy.
[8] Trib. Napoli 14 September 2009 in Laws of Italy.
[9] Trib. Bologna 21 September 2011 in Laws of Italy.
[10] Trib. Bergamo 5 August 2008 in Agents and Sales Representatives 2010, No. 1, 34.
[11] See Trib. Torino 15.9.1989 (which considered a term of 15 days to be congruous); Trib. di Trento 18.6.2012 (which considered a term of 6 months for a 10-year relationship to be congruous).
[12] Cass. Civ. 2009, no. 20106.
[13] Cass. Civ. 18.9.2009 "On the subject of contracts, the principle of objective good faith, i.e. of mutual loyalty of conduct, must govern the performance of the contract, as well as its formation and interpretation and, ultimately, accompany it at every stage. [...] The obligation of objective good faith or correctness constitutes, in fact, an autonomous legal duty, the expression of a general principle of social solidarity, the constitutionalisation of which is by now unquestionable (see in this sense, among others, Court of Cassation Civ. 2007 no. 3462.)"
[14] Distribution Contracts, Bortolotti, 2016, p. 565, Wolters Kluver
[15] Court of Appeal Rome, 14 March 2013
[16] Trib. Trento 18.6.2012; Cass. Civ. 1974 no. 1888; Contratti di distribuzione, Bortolotti, 2016, p. 567, Wolters Kluver; Il contratto di agenzia, Venezia - Baldi, 2015, p. 153, CEDAM
The post-contractual covenant not to compete of the employee, self-employed person, director, partner and agent. A brief overview.
The post-contractual covenant not to compete is certainly a very delicate element in an employment relationship and one that, depending on the addressee of this obligation, has different requirements as to form and substance. The purpose of this article is to provide the reader with an overview of this institution by briefly analysing how and with what limits this bond may bind the employee, the self-employed, the administrator, the partner and the commercial agent.
- Employee
The employee's covenant not to compete is governed by Article 2125 of the Civil Code. This article expressly provides that the covenant must, on penalty of nullity:
- (a) be made in writing;
- (b) establish a constraint contained within certain limits of subject, place and time;
- (c) provide for a consideration in favour of the employee.
With reference to (a), there are no particular issues to be addressed. The pact shall̀ be undersigned (and preferably initialled on each page) by the employee. Moreover, although according to traditional case law, the non-competition agreement does not require a double signature pursuant to Art. 13.41 of the Civil Code.[1]However, it is prudently recommended that such a post-contractual undertaking be specifically approved in writing in order to avoid possible disputes, also in view of a possible change in the above-mentioned jurisprudential orientation.
As for point (b), the time limits of the post-contractual agreement are defined in the second paragraph of Art. 2125 of the Civil Code as 5 years for executives and 3 years for other cases. It should be emphasised that the terms set forth in Article 2125 of the Civil Code constitute the maximum limits for the duration of the covenant, and the payment of the compensation due to the employee must also be calibrated to the actual duration of the covenant agreed upon by the parties.
The evaluation of the adequacy of the place within which the activity is prohibited is in close connection with the object of the activity carried out by the employee and, to this end, the indication of an excessively broad space may lead to the nullity of the covenant itself. On this point, there are controversial case law precedents, with one part of the case law considering that the pact extended to the entire national territory is null and void, inasmuch as it excessively restricts the employee's possibility of re-employment.[2] Other pronouncements, on the other hand, have considered valid EU-wide covenants,[3] in that the activity had been precisely specified so as not to excessively restrict the employee's working and professional capacity.
About the quantification of remunerationcase law assumes as an assessment criterion the congruity of the same to the sacrifice borne by the worker in the individual case[4]in holding that the sum paid to the worker must be proportionate to it.[5]
Clearly, since the concept of fairness is a very abstract one, it is very difficult to apply objective criteria to it. In any event, although there is no unambiguous and objective criterion for establishing the congruity of the covenant, case law holds that a consideration in the region of 15%-35% of the gross annual remuneration may be considered congruous.[6]
Secondly, the quantum in addition to being congruous it must be predetermined and/or predeterminable. Jurisprudence has held null and void, insofar as it was indefinite, a covenant that provided in favour of the employee a tot euro for each month until the termination of the relationship, as this covenant did not allow the employee to determine ex antealready at the time the agreement was signed, a minimum amount.[7]
In order to find a solution to the problems illustrated above and in order to attempt to stipulate a non-competition agreement that is effectively valid and with a reduced possibility of being challenged, one could hypothesise to include as an indemnity recognised to the employee, a percentage sum whose value increases with the lengthening of the relationship and which is linked to the gross sums paid to the employee in the last year of the relationship or, in a more favourable case, in the twelve months following the signing of the agreement.
- Self-employed
The covenant not to compete signed by a self-employed person,[8] is regulated by Article 2596 of the Civil Code.
The limits provided for by this rule are as follows:
- must be proven in writing
- it is valid if confined to a specific area or activity;
- may not exceed a duration of five years.
As can be seen, points a), b) and c) are similar to those already discussed above, to which we refer in full.
The essential difference is that Article 2596 of the Civil Code, unlike Article 2125 of the Civil Code, does not provide for any sanction for the failure to provide for consideration in favour of those who contractually submit to competitive restraints. Therefore, the fact that the non-competition agreement does not provide for any consideration is of no relevance, being in this respect, in any event, valid, effective and unenforceable.
However, very often one encounters problems related to the incorrect classification of self-employed workers, who, due to the way they carry out their activities within a company, may not have been properly classified as employees. For these figures, the problem could arise whereby, once the relationship has ceased, they intend to bring an action before the Employment Court to ascertain the subordination of the relationship and, with it, the invalidity of the non-competition agreement, since it lacks one of the essential elements provided for by Article 2125 of the Civil Code (namely, remuneration).
In any event, it is emphasised that the provision of a paid non-competition agreement in favour of such persons could be used by them as a further element to prove the subordinate nature of the relationship.
- Company director
Like self-employed persons, the non-competition agreement signed by a director is also subject to the limits set forth in Article 2596 of the Civil Code and, therefore, there is no requirement that he be remunerated.
With reference to the director's non-competition in reporting courseit is solely regulated formerly Article 2390 of the Civil Code, for directors of joint stock companies, which provides as follows:
"[1] Directors may not be unlimited partners in competing companies, nor engage in a competing activity on their own behalf or on behalf of third parties, nor be directors or general managers in competing companies, unless authorised by the shareholders' meeting.
[2] For failure to comply with this prohibition, the administrator may be removed from office and is liable for damages."
In contrast, for limited liability companies, there is no explicit prohibition for directors to act in competition during their term of office [9]with the consequence that it is the articles of association of the company that may freely provide whether the director may or may not perform such activities.
- Partners of limited liability companies
S.r.l. partners are not required to refrain from activities that compete with the company in which they hold shares. Indeed, in the Italian system, competition is only prohibited formerly Article 2301 of the Civil Code to partners in general partnerships and general partners in limited partnerships
If a non-compete obligation is also intended for partners, it could be:
- have the partners sign a non-competition agreement;
- sign a shareholders' agreement, whereby all shareholders undertake not to engage in activities in competition with the company and whose contents are in any case those provided for in Article 2596 of the Civil Code.
It should be noted that the shareholders' agreement is also valid for a maximum of five years and must therefore be renewed upon its expiry.
- Agency contract
The agency contract expressly regulates the non-competition agreement in Article 1751-bis of the Civil Code.
This issue has already been dealt with in this blog, so please refer to the following article (The non-compete obligation in the agency contract: during and after termination of the relationship).
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[1] Traditional jurisprudence has ruled out the applicability to the non-competition agreement of the provisions relating to vexatious clauses, on the ground that Art. 2125 lays down more stringent conditions than those set forth in Art. 1341, and in view of the peremptory nature of the hypotheses contemplated in para. (2) of the latter provision (see Turin Tribunal, 8.2.1979).
[2] Trib. Monza 3.9.2004.
[3] Cass. 21.6.1995 no. 6976; Trib. Milan 22.10.2003.
[4] On this point Cassation 1998 No. 4891.
[5] Cass. Civ. 1998 no. 4891; Trib. Milan 27.1.2007.
[6] E.g., a consideration quantified in 15% of the total amount of the remunerations paid to the employee in the last two years of the relationship against a non-competition obligation of two years' duration was deemed congruous) Trib. Milan, 22.10.2003.
[7] Trib. Venezia 31.5.2014.
[8] IMPORTANT. In this category does not include the commercial agent, for which there is a separate discipline, regulated in Art. 1751-.encore, which is not subject of examination for this opinion.
[9] In fact, before the reform brought about by Legislative Decree No. 6 of 2003, Article 2475 of the Civil Code made explicit reference to Article 2390 of the Civil Code. Now the reference has been eliminated.