How to quantify compensation for clientele
In previous articles we discussed the different compensations to which the agent is entitled after termination of the contract and termination of the agency relationship with the employer with who they hired Specifically, in the post Indemnities for ending the agency contract we listed the different compensation rights that could be claimed.
We have also analyzed the compensation that corresponds to the distributor in a distribution contract in our post Distribution Agreement published previously.
In this case we will focus on the quantification of compensation for clientele, both in the agency contract and in the distribution contract, as this type of compensation is the most common among the claims that are made, and because it is a common problem not knowing how much can be claimed.
How to quantify compensation for clientele in the agency contract
The truth is that the Agency Contract Law does not establish a quantification criterion, giving rise to a certain legal uncertainty that the courts have been trying to correct through sentences.
It simply imposes a maximum: “the compensation may not exceed, in any case, the average annual amount of remuneration received by the agent during the last five years or, during the entire duration of the contract if it is shorter”.
We begin by noting that the Courts frequently grant the maximum amount of compensation allowed by article 28.3 of the Agency Contract Law that we reproduced in paragraph that is, the average annual remuneration received by the agent in the last five years.
In any case, the forecast that sales will continue in the future is required, so that the employer continues to benefit from the activity undertaken by the agent in previous years.
If it is not possible to continue selling to the customers captured by the agent, or if there is any cause that allows predicting a decrease in sales, the amount of compensation must be reduced accordingly.
We could conclude that the quantification of compensation requires:
- Distinguish the clients that the agent has obtained for his own commercial activity.
- Determine the volume of business that this client portfolio has generated, and what figures are considered in the coming years.
- Apply equity corrective factors to increase or decrease compensation as appropriate.
We will now analyze the most relevant circumstances of equity that Courts usually consider to assess the amount of compensation:
Importance of product branding
The reputation and reputation of the brand is an aspect to take into account. Some brands do not require great commercial action by the agent, but on the other hand, others that are not so well-known in the market require a greater commercial effort to convince the end customer. The investment in advertising, marketing, etc. must also be taken into account.
This effort required by the brand should be noted to assess in what proportion an increase in sales is a direct consequence of the agent’s activity. It is understood that the agent whose involvement is going to have greater significance for the benefit of the employer deserves more compensation.
Term of agency relationship
Although this criterion is not used by all jurisprudence, since compensation for clientele values the future profit of the employer and not the past profit, it is true that the Courts they are more inclined to admit greater compensation when the relationship between the parties has been more lasting.
If the agent did not have exclusivity, and therefore was able to share his activity with other entrepreneurs, he did not devote all his efforts to promoting a single product or service strong>. The agent with exclusivity has an added argument to request more compensation.
Target sales result
An agent deserves different consideration for having improved sales by 10 percent than by 50 percent, or even if the business owner has benefited from an exponential increase. This is an important element to take into account when quantifying compensation.
How to quantify compensation for clients in the distribution contract
As with the agency contract, the most contentious issue in distribution contracts lies in the consequences derived from the termination of the contract, and especially the origin and quantification of the compensation for clientele.
In general terms, the Courts admit the application of the rule provided for in article 28.3 of the Agency Contract Law analyzed above.
Although the jurisprudence has determined that its automatic application is not appropriate, but that the effective contribution of customers by the distributor must be proven and the possibility that the employer or supplier can take advantage of it in the future.
Since the remuneration is different in the distribution contract, the calculation of the compensation will take into account the characteristics of this contract. In this sense, the remuneration for the purpose of quantifying the compensation will be the difference between the adjudication price of the goods and the resale price.
The ruling of the Supreme Court of May 30, 2016 establishes that the amount will attend the percentage of profit that remains for the distributor after deducting the expenses and taxes, and not the trade margin, understood as the difference between the purchase price of the goods from the supplier and the sale price to the public.
In the case of the distribution contract, and in order to quantify the amount to be compensated, the circumstances of equity outlined above with respect to the agency contract must also be taken into account.< /p>
First.- Both in the distribution contract and the agency contract, the Courts usually admit as compensation the maximum amount allowed strong>, that is: the average annual amount of remuneration received by the agent or distributor during the last five years.
Second.- A correct quantification will be based on the volume of business generated by the agent or distributor by customers who have been captured by their commercial activity
Third.- It should be considered that part of the customers captured will continue to generate a benefit for the employer or supplier.
Fourth.- The compensation must be agreed based on the equity circumstances required by the specific case. We have previously indicated the most relevant and common equity reasons in practice.