The multiplicity of commercial contracts, even verbal ones, whose termination regime determines the application, by analogy, of the regime provided for in the Agency Contract Law—particularly regarding compensation for failure to comply with the notice period and client indemnity—their relevance in business life and the growing number of legal actions that the litigation department of Belzuz Abogados, S.L.P. in Portugal has been handling, justify a closer look at this matter.
Especially concerning foreign companies that establish commercial relationships with Portuguese companies for purposes such as reselling their products, it is common practice not to set out in writing the rules governing such relationships. Consequently, it is generally assumed that these do not constitute concession or distribution agreements and, therefore, are not subject to that legal regime.
The truth is that this is not always the case and, although it always depends on the evidence produced in court and its assessment by the judge, we may see the commercial relationship qualified as a concession or distribution agreement, obliging companies to comply with the notice period provided for in Decree-Law No. 178/86 of 3 July, as amended by Decree-Law No. 118/93, and becoming subject to the payment of client indemnity.
The minimum statutory notice periods are 30, 60, or 90 days depending on whether the contract has lasted less than 6 months, less or more than 1 year respectively, and are based on an amount calculated from the average monthly remuneration earned during the previous year, multiplied by the remaining time.
When the contract is terminated unilaterally, there is also a client indemnity intended to compensate the agent for the benefits or advantages that, once the contract ends, the principal will continue to obtain from the clientele acquired or developed by the agent. This indemnity is due regardless of the manner or duration of termination and is in addition to any other indemnity that may be apply.
Only just cause excludes the right to this indemnity.
This compensation is expressly provided for in Article 33 of DL 178/86, as amended by DL No. 118/93 of 13 April, and it is unanimously understood, considering the purpose of the provision, that this rule is mandatory, meaning it cannot be waived by the parties.
Its granting is subject solely to the cumulative fulfilment of the following requirements:
(i) the agent has acquired new clients for the other party or substantially increased business with existing clients, (ii) the other party benefits considerably, after the termination of the contract, from the activity developed, (iii) the agent has ceased to receive any remuneration for contracts negotiated or concluded, after termination, with the clients referred to in (i).
The calculation of this compensation is based on equity, starting from the annual average of remuneration earned in the last five years, adjusted by fairness.
Anyone wishing to exercise this right must notify, within one year after termination of the contract, their intention to receive the indemnity and, if necessary, claim it in court in the year following such notification.
Belzuz Abogados, S.L.P. in Portugal has lawyers qualified to provide legal advice on matters relating to the legal regime of the Agency Contract and similar agreements.