In 2022 and the beginning of 2023 we have witnessed an inflationary spiral such as we have not seen in the last 30-40 years, and this is affecting a good number of existing contracts.
In the case of commercial agents, it is exceptional for their contracts to contain an inflation clause. This seems normal because, after all, the commission, which normally constitutes the commercial agent’s remuneration, usually takes the form of a percentage of the sales concluded.
Consequently, if the base increases due to the effect of inflation, the application of the percentage of commission means that the commission is automatically updated. However, inflation can, however, have an impact on other aspects of commercial agency contracts.
Where it has been agreed that the agent will be entitled to a minimum income and a hybrid remuneration formula is stipulated, with part fixed and part variable remuneration, the fixed part of the remuneration will be devalued to the detriment of the agent if there is no provision for its updating. On the other hand, failure to provide for the effects of inflation on the contract may be to the agent’s advantage and to the disadvantage of the principal in terms of meeting sales targets, if sales targets have been set in the contract and there is no contractual provision for their revision. A significant inflation rate accumulated over several years means in practice a substantial reduction of the sales targets. If, on the other hand, the contract links the achievement of sales targets to the duration of the contract or its extension, or the maintenance of the agent’s exclusivity in the territory, it is clear that inflation may significantly affect the contractual balance provided for at the beginning of the contract.
Another aspect of the agency contract where inflation can have a significant impact is in the calculation of the customer indemnity to which the agent is entitled by law in the EU and many other jurisdictions. The calculation of the indemnity, which depends on a negotiation between the parties, is subject to a legal ceiling (it may not exceed the average annual amount of remuneration received by the agent during the last five years or, during the entire duration of the contract, if this is less) and this calculation may be altered by the depreciation of the amount of commission received in previous years, prior to the current context of inflation, and thus lower the value of the average. However, since Article 28 of the Spanish Agency Contract Act allows the agent to bring up, in connection with clientele compensation, “any other circumstances”, inflation may be brought up as one of them.
In view of the above, it is important for the entrepreneur to review whether his commercial agency contracts (and by extension and analogously, his distribution contracts) give him sufficient flexibility in an inflationary context to update the sales targets agreed with the agent and to verify the possible contractual consequences if the contract contains provisions linking the agent’s exclusivity and continuity to the achievement of the pre-set sales targets.
March 2023
