The indemnity in lieu of notice in an agency agreement.

In Italian law, the duration and termination modalities of the agency contract are regulated by Article 1750 of the civil code.

The first paragraph of this article states that 'the fixed-term agency contract which continues to be performed by the parties even after the expiry of the term is transformed into a contract of indefinite duration."

Para. (2) of Art. 1750 of the Civil Code regulates the minimum notice to be given by the parties in the event of termination. Specifically, it provides that: the "open-ended agency contract may be terminated by the parties only if notice is given, which may not be less than":

  • 1 month for the 1st year,
  • 2 months for the 2nd year,
  • 3 months for the 3rd year,
  • 4 months for the 4th year,
  • 5 months for the 5th year,
  • 6 months for the 6th and subsequent years.

Importantly, the parties may provide for a longer notice period, but never inferior to that dictated by the codified rules.

The question arises, therefore, what happens if the notice period is not observed: does the principal owe the agent an indemnity for the notice period not observed?

Example:

Agent X has worked for principal Y for 6 years. Principal Y decides that it does not want to continue working with the agent, a decision supported by mere personal reasons and without the existence of just cause. It terminates the contract without notice and pays the commissions due up to the date of termination.

The lawyer of principal Y, upon learning of the incident, contacted the principal advising him that, on the basis of settled case law, in the event of a principal's failure to give notice of termination the agent is nevertheless entitled to receive a indemnity in lieu of said notice (in this case 6 months) to be calculated on the average of the commissions accrued in the year prior to termination[1].

It may be concluded that where a party terminates, without there being a reason sufficient to justify such a choice, it is obliged to compensate the other party for the damage.

In the event of termination by the principal, such damage shall, in principle, correspond to the commissions that the agent allegedly received in the remaining period of the relationship. [2]

It is disputed whether such indemnity in lieu of notice is due only in the case of (unjustified) termination by the principal or also in the case of termination for just cause by the agent. According to the prevailing case law, it is held that the agent should also be entitled to the indemnity in lieu of notice in this case. [3]in addition to any damages[4].

Moreover, the case law holds that the agent's termination for just cause is converted, where it is established that there is no just cause and unless a different intention on the part of the agent emerges, into a termination without notice, with the consequent right of the principal to receive the indemnity for lack of notice.[5]

Finally, according to authoritative doctrine (Bortolotti) and case law,[6] It would seem that the right of the party affected by the termination cannot be excluded a priori to claim 'full' damages if it proves that the damages amount to a sum greater than the severance pay.

However, it is important to emphasise that the indemnity in lieu of notice is mandatory and cannot be excluded either by collective or individual agreements.[2]

ABSTRACT

  • a fixed-term contract that is continued to be performed following its expiry turns into an open-ended contract
  • the parties may provide for a notice period longer, but never shorter than that provided for by law
  • if terminated without notice, an indemnity in lieu of such notice is nevertheless provided for, to be calculated on the average of the commissions accrued in the year prior to termination
  • it is held that even if the termination for just cause is effected by the principal, the latter shall be entitled to the indemnity for lack of notice
  • it would seem that the right of the party affected by the termination cannot be excluded a priori to claim 'full' damages if it proves that the damages amount to a sum greater than the notice payment

[:de]Art. 1750 of the Civil Code regulates the duration of the agency contract and its termination.

The first paragraph provides that 'the fixed-term agency contract which continues to be performed by the parties even after the expiry of the term is transformed into a contract of indefinite duration."

The second paragraph of Article 1750 of the Civil Code further provides that the "open-ended agency contract may be terminated by the parties only if notice is given, which may not be less than":

- 1 month for the 1st year
- 2 months for the 2nd year
- 3 months for the 3rd year
- 4 months for the 4th year
- 5 months for the 5th year
- 6 months for the 6th and subsequent years

The parties may provide for a notice period that is longer, but never shorter, than that dictated by the codified rules.

The question arises, therefore, what happens if the notice period is not observed: does the offeror owe the agent an indemnity for the notice period not observed?

E.g. Agent X has worked for 6 years for proponent Y. Proposer Y decides it does not want to continue working with the agent, a decision supported by mere and simple personal reasons and without the existence of a just cause. It terminates the contract without notice and pays the commissions due up to the date of termination.
The lawyer of offeror Y, having become aware of the event, contacts the principal advising him that, according to settled case law, in the event of failure to give notice of termination by the principal, the agent is in any event entitled to receive an indemnity in lieu of such notice (in this case 6 months) to be calculated on the average commissions accrued in the year preceding the termination[1].

It is important to stress that the indemnity in lieu of notice is mandatory and cannot be excluded either by collective or individual agreements.[2]

ABSTRACT

  • a fixed-term contract that is continued to be performed following its expiry turns into a contract of indefinite duration;
  • the parties may provide for a notice period longer, but never shorter than that provided for by law;
  • if terminated without notice, an indemnity in lieu of such notice is nevertheless provided for, to be calculated on the average of the commissions accrued in the year prior to termination

[:en]Article 1750 of the Italian Civil Code governs the duration of the agency agreement and its termination.
The first paragraph provides that "the agency agreement for a fixed-term contract, which continues to be performed by the parties even after the expiry of the term turns into an open-ended contract.

The second paragraph of art. 1750 cc, it also provides that the 'agency agreement for an indefinite period may be terminated by the parties only if it is given notice, which may not be less than'.

  • 1 month for the 1 year
  • 2 months for the 2nd year
  • 3 months for the 3rd year
  • 4 months for the 4th year
  • 5 months for the 5th year
  • 6 months for the 6th year and for subsequent years

The parties may stipulate a longer period of notice, but not shorter than that dictated by above mentioned terms.

One wonders, therefore, what happens if the notice period is not met: the principal must pay to the agent compensation for the notice period is not respected?

For example: The agent Caio has worked for six years for the principal Tizio. Tizio chooses not to continue working with the agent, a decision supported by mere and simple personal reasons and without the existence of a just cause. He terminates the contract without notice and pays the commission due to the date of recission.

The lawyer of Tizio, aware of what happened contacts the principal warning him that, based on a constant Italian case-law, in the event the principal teminates the contract without notice the agent is still entitled to receive the payment of the notice period (in this case six months) to be calculated on the average of commissions earned in the year prior to the termination.

Important! The compensation in lieu of notice is mandatory and can not be excluded nor by collective bargaining or individual contracts.

IN SUMMARY
the fixed-term contract which is continued to be performed after its expiry turns into permanent contracts;
the parties may provide for a notice period higher, but never lower than that provided by law;
in case of termination without notice and cause, the agent has right to a compensation in lieu of notice, to be calculated on the average of commissions earned in the year prior to withdrawal[:]

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