_Agency: news for the principal about termination for just cause

Agency: news for the principal about termination for just cause
by Andrea Savoia and Marilena Cartabia

Two recent Court rulings offer the chance to make some remarks about the termination of the agency contracts for just cause.

In the first case, on March 12th, 2018, the Tribunal of Treviso rejected all the agent’s claims: the agent challenged the just cause of termination, and therefore claimed to be entitled to receive the indemnity in lieu of notice as well as the termination indemnities provided by 2010 “AEC” (i.e. the Economic Agreement for Commercial sector) and by article 1751 of the Italian Civil Code.

According to the Judge, the termination was grounded on just cause, since the Company withdrew from the agency contract because the agent repeatedly ignored the obligation to provide reports and informative notes, so “abandoning” the clients portfolio granted to him.

By considering the termination served by the principal as grounded on just cause, the Tribunal stated that the agent was not entitled to receive the indemnity in lieu of notice, nor the supplementary indemnity for clients nor the meritocratic indemnity, because the “AEC” provides that such indemnities are not due when the termination of the agency contract is due to the agents’ behavior.

It is important to remark that the Tribunal considered the indemnity provided by Article 1751 of the Italian Civil Code and those provided by the “AEC” as alternative instead of cumulative: this is important since the former agents constantly claim to be entitled to such amounts, with the sole purpose to increase the amounts asked to the principal after the termination of the agency contract.

In the second case, on December 22nd, 2017, the Court of Appeal of Turin stated on an opposite case, where the agent terminated the relation for just cause.

The Court considered the just cause definition provided by article 2119 of the Italian Civil Code, then stating that there is no violation of the fiduciary relation between agent and principal when the principal changes the kind of products to be offered by the agent and the terms and conditions applied to the clients.

Indeed, not only the agent expressly agreed many of such edits, but that was decided by the principal in light of new market developments occurred after the signature of the agency contract.

Indeed, according to the Judge, such edits were lawful because the principal is the only one entitled to decide the kind of products to be offered on the market and the kind of clients to be approached, and the agent cannot question such choices. 

Furthermore, according to the Court the principal did not violate the good faith principle by allowing the branches to apply more favorable conditions to their clients, compared with those must be applied by the agents. Indeed, through the branches the company directly control its clients, without the mediation of the agents, thus resulting a lower final price applicable to the client.

In conclusion, both court rulings are relevant precedents to determine which behaviors of agents and principals can damage the fiduciary relation in an agency contract, thus allowing to suddenly terminate the contract. These two court rulings show that also peculiarities of the market in which the agents operate shall be taking into account while ascertaining a serious breach of the contract.