Agency Contracts

Negotiating and Drafting Agency Contracts in Italy

By 29 November 2016 April 12th, 2018 No Comments

By Carlo MOSCA

Managing partner, Lexmill law firm

 

 

Background.

There are some 230 000 commercial agents reportedly operating in Italy. The figure may be drawn from the records kept by ENASARCO foundation, the once-public pension and social security agency they have a general duty to register with (see below for details).

The numbers are impressive (source Enasarco annual Financial Reports available at http://www.enasarco.it/bilanci), putting Italy at the first place in a EU quantitative ranking (Germany, e.g., has just one sixth of operating subjects).

The fact is that the vast majority (some 212k) of Italian agents are a one-man business (the term is gender-appropriate, considering that just 13% of them are female). The agents operating in partnership do not exceed 19k, and those operating as a limited company even less, i.e. some 16,5k. So, in the end, the typical agent’s dimension is very small. No surprise that three out of ten work are monomandatari, i.e. they make their living from just one principal.

The are no official data showing how many Italian agents work on behalf of foreign principals.

 

The legal framework in a nutshell.

Agents as a commercial operator. According to the Italian law, an agent is a commercial operator, irrespective of the fact he operates as a one-man business or in the form of a large corporation. However, agents who are individuals, or utilize an organization mainly based on their personal activity are treated as quasi-employees rather than an independent business persons. As a consequence, they enjoy a special regime of pension and social security (definitely close to the employees’), and disputes are the competence of Labor, instead of ordinary courts.

Contract Law. In the light of an Italian court (as well as in those of any other EU court), according to the general principle of parties autonomy in choosing the law applicable to contractual obligations (Italy is bound by EU Reg. 593/2008 so called Rome I Regulation), a contract with an Italia agent may well be subject, in the whole or in part to a law other than the Italian. However, public interest may activate application of overriding mandatory provisions of the Italian law. This is the case, in particular, for the provisions set in the EU 1986 Commercial Agency Directive for protecting some agent rights. A striking application of this principle is the ECJ’s decision in the case Ingmar v Eaton (2000) in which the laws of Californian (where the principal was based) selected by the parties to an agency contract could not derogate from the EU regulations (the agent was based in the UK) in re. right to final indemnity.

To the extent that the law applicable to the contract has not been chosen by the parties, an Italian court (as well as any another court in the EU) will apply the law of the country where the agent, as service provider, has his habitual residence. Should this lead to application of the Italian laws, reference will be primarily made to the sections 1742 ff. of the Italian Civil Code. These are in line with the principles set in the 1983 EU directive. The final result is that the Italian regime is roughly the same as that in force all over the EU; however, there are some notable exceptions (Differences in the way the EU member states have implemented the Directive may count! See the case Unamar, 2013 where the ECJ held that lex fori mandatory rules on commercial agency may override the provisions of another EU State’s legislation in the same matter subject). In addition, the history has its importance, and Italy has been maintaining a special status for the commercial agents since the ‘20s, adding collective bargaining agreements and a conspicuous case-law to the dicta expressed in the Civil Code.

Peculiar features in the Italian system may be summarized as follows-

  1. Agent’s exclusive rights are assumed, unless otherwise agreed upon by the parties (sect 1743 c.c.);
  2. The agency agreement must be evidenced in writing.
  • Events amounting to a breach of contract serious enough to entitled the principal to terminate the contract tend to be scrutinized according to the criteria utilized in the employment contracts.
  1. Sectorial Collective bargaining agreements (AECs) have been enacted since the ‘20s and they are still in use in their updated versions. AECs are generally taken into consideration by courts, even in case where they are not strictly applicable.
  2. Too strict control over the agent’s activity is generally considered as a symptom of an employment relationship. This may lead to the application of rather harsher rules to the detriment of principal.
  3. The ‘del credere’ clauses are nowadays virtually unenforceable (they have to be agreed upon in respect of single operations, and to be expressly remunerated, and the agent’s liability cannot exceed the amount of relevant agreed commission – sect. 1746 c.c.).
  • An additional remuneration is granted in case the agent is charged with the duty to collect money from clients.
  • In re. final indemnity, Italy opted for the so called German system (sect. 1751 c.c.); however, lacking any precise criteria, the factual determination of the indemnity amount is still far from being fully predictable. Case-law shows that most of the time some 70 to 80% of the full average yearly commissions is granted;
  1. A post-contractum obligation not to compete must be expressly rewarded (sect. 1751-bis c.c.).;

VAT regime: An Italian agent who operates in Italy has a general duty to comply with the EU VAT system as implemented in Italy, and in particular to issue an invoice in respect of any money he receives from his principal. According to the EU rules, said invoice will be VAT exempt.

Social Security and Pension. Non-Italian principals that maintain no stable organization in Italy are not required to register their Italian agents with ENASARCO. (“Italian agents” stands for those persons who, irrespective of their nationality, work exclusively or preponderantly in Italian territory.) It is worth noting, however, that ENASARCO has recently taken a different view in this respect, based on sect. 2(2) of its “Regolamento delle Attività Istituzionali” effective Jan 1st, 2012 which recalls a general duty to comply with the norms on social security as established by the EU and the international treaties Italy is party of. Namely, ENASARCO is reportedly seeking to enforce a general duty to register (i) vis-à-vis EU-based principals, relying on EU Regulation 883/2004 “on the coordination of social security systems”; (ii) vis-à-vis non-EU principals, relying on the applicable treaties on the matter subject (see a ENASARCO letter dated July 19, 2012 circulated as AIS no. 2/2012). Registration must be made online within 30 days from the commencing of the relationship, and failure to register will expose principal to a €250 fine per not-disclosed agent.

A registering principal is requested to pay ENASARCO a quarterly contribution diversified according to the fact that its agent (a) is a limited liability company or not, and (b) he work also for other principals or not. Focusing of agents who work for more than one principal, if they are limited companies the contribution is 4% on the first 13k remuneration, 2% on subsequent 7k, 1% on subsequent 6k and 0,5% on the rest. E.g. assuming an agent is paid some 50k/y, the principal has to pay ENASARCO € 840. In the latter case (i.e. the agent is not a limited company), the calculation is based on different criteria. In short, in case of an agent who works also per other principals and gain some €50k/y, contribution will be around €3,800, being entitled to withdraw a half (i.e. €1,900) from what he owes the agent.

In addition, a further contribution is to be paid exclusively by principal to the ENASARCO “FIRR” fund, as a non-redeemable advance on agent’s final indemnity. The contribution is 4% on first 12,4k of remuneration accrued, 2% on subsequent 6,2k and 1% on the rest. In other words, still assuming a 50k/y accrued remuneration, the relevant FIRR contribution will be € 727.

In case of agents who work for one principal only (so called monomandatari), all said contributions are higher.

 

How to Negotiate with Agents at Best.

In general, it is advisable to have a detailed agreement made, instead of not having any. Usually an Italian agent has no big bargaining power, in particular on account of his small dimensions.

However, if the agreement is not well drafted, the agent may rely on a fairly protective default system, and in case of dispute may count on his domestic forum. Also the administrative collateral steps (see above about ENASARCO) may be troublesome for a foreign principal.

Possible reference in the contract to a Collective Bargaining Agreement should be scrutinized, because it may result to the detriment of the principal.

 

Since years, we have been assisting foreign principal in dealing with such issues.

In case of need please do not hesitate to contact us at c.mosca@lexmill.com We can advise you, and assist you in negotiation, and finalization of your agency contracts in Italy.

Carlo Mosca
Author: Carlo Mosca

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