Goodwill compensation - under Dutch agency law

What is goodwill compensation - under Dutch agency law?

In addition to any rights to claim damages, under Dutch law an agent is entitled to goodwill compensation upon termination of their agreement. The main purpose of this is to provide consideration if the agent has brought in new business for the principal or has significantly affected the duration of the agreements currently held by the principal. Its design ensures the protection of an agent who is considered, under Dutch agency law, vulnerable in such agreements.

Requirements for goodwill compensation under Dutch law

What are the requirements for goodwill compensation under commercial agency law in the Netherlands?

In the Netherlands, a principal’s obligation to pay goodwill compensation to agents is outlined in Article 7:442 of the Dutch Civil Code. To be granted goodwill compensation, there must be reasonable cause and the agent must have brought in new business that the principal will benefit from. Individual cases must extend on these elements to give rise to such compensation, mainly that:

1. the compensation is reasonable when assessing all the circumstances of the case, especially the agents’ loss of future commission on the contracts with these third parties
2. the new business is substantially profitable and still sustainable upon termination.

It should also be noted that in the event immediate termination is justified, this does not automatically mean the right to compensation for this new business is lost.

What amounts to "new business" generated by the agent?

In the context of goodwill compensation under agency law in the Netherlands, what amounts to "new business" generated by the agent?

In order to be eligible for goodwill compensation, the agent must have generated new business. Generally, this is in the form of new clients.

However, recent jurisprudence from the ECJ has extended the scope to the business of existing clients. So, if contracts have been extended with current customers due to the direct actions of the agent, they will be seen to have acquired new business for the principal.

How is goodwill compensation calculated under Dutch agency law?

The sum of goodwill compensation available varies depending on the level of reasonableness and the new business in question. There is no fixed amount for certain types of cases, as both elements must be taken together on a case by case basis. However, the compensation must not exceed, unless agreed otherwise in writing by the parties, one year’s worth of business. Generally, this one year is calculated on the basis of an average of the previous 5 years of work, or if less, the actual period of work carried out. In addition, when calculating the compensation, consideration must be given to the following:

1. the point in time at which the principal is expected to benefit from this new business
2. any depletion of the customer client base acquired by the agent
3. the agent receiving compensation all at once and at an accelerated pace.

Exceptions to goodwill compensation under Dutch law

Under Dutch law, certain exceptions exist which can remove a principal’s obligation to compensate an agent. This is when:

1. the agreement has been ended by the principal due to the agent’s breach
2. the agreement has been ended by the agent, unless this action is justified by conduct that is attributable to the principal or on the basis of the age, invalidity or sickness of the agent where he cannot be reasonably expected to continue his duties
3. he agreement has been terminated by the agent who has, with the authority of the principal, transferred the contract to a third party.

The agent’s right to goodwill compensation will also be lost if he does not notify the principal within one year after the agency agreement has been terminated that he seeks to claim this compensation.