Some Pointers about German Agency Law

The central objective of German agency law is to protect the interests of commercial agents selling products within the territory of Germany. A commercial agent, in short, is any self-employed businessman who arranges or closes transactions on behalf of, in the name of, and for the account of one or more principals on an ongoing basis. Though principals and agents are generally permitted freedom of contract, there are certain provisions enshrined in the German Commercial Code which principals and agents may not contract out of.

The specific agents whom agency law protects are generally restricted to the pure commercial agent, who is self-employed but enters into transactions under the instructions and on behalf of one or more principals; the commission agent who habitually acts in his own name but for the account of a principal in certain specified areas such as trading in art and antiques or securities, for example; the agent for commission who acts like a commissioner but only for one principal; and the broker, who acts for a specific principal in a “one-off” transaction rather than on an ongoing basis.

With respect to the statutory provisions, the German Commercial Code imposes a duty of secrecy on the commercial agent during the term of the agreement as well as after its termination as regards trade and business secrets of the principal. In addition, the Code provides that any non-competition restriction on the commercial agent after termination of the agreement must be made in writing and may not exceed a period of two years after the end of the agency agreement, and any post-contractual non-competition restriction is subject to payment of reasonable compensation.

The principal must be aware that liability for all acts of the agent toward third parties is imposed on the principal by German law. Liability may also arise in the area of labour law. The principal must be careful to ensure that the commercial agent acts entirely as an independent agent and not as the equivalent of an employee under German law.

The German Commercial Code permits the principal to terminate the contract with the agent subject to appropriate notice. The notice period varies from one month to three months for terms from one year to five years, depending on the length of the relationship. The Code imposes a maximum notice period of six months for commercial agency relationships that have continued for more than five years. Longer notice periods may be agreed; shorter notice periods will be invalid.

On termination, a commercial agent selling products in Germany is entitled to receive compensation from the principal for the period of time the agency relationship lasted unless termination was due to serious cause.