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Principals: be careful when passing on operating costs to your commercial agents

30/11/2021
Principals: be careful when passing on operating costs to your commercial agents

Commercial agents often have to contribute to costs that the principal bears, such as IT costs, marketing costs and administration costs. In the banking and insurance sector, there are specific costs concerning transporting valuables and the costs of maintaining ATMs; and, in recent years, there have also been several new costs to which the agent often has to contribute, such as contributions to bank taxes, the deposit guarantee fund and digital prospecting. Two bills, which are currently being considered by the Belgian parliament, aim to amend Book X of the Belgian Economic Code to protect commercial agents (in particular, self-employed bank and insurance agents) against unilateral increases of such costs by the principal. Such a unilateral increase could lead to a termination of the commercial agency contract.

Currently no protection against the unilateral increase of costs, only against the unilateral change of commissions

Book X of the Belgian Economic Code (“Wetboek van Economisch Recht”) contains protection for the commercial agent against the unilateral change of commissions by the principal. A unilateral change can lead to the termination of the agency contract, which means that the agent would be entitled to payment of termination compensation and possibly also goodwill compensation.

The law does not provide similar protection for the commercial agent in the event of a unilateral increase in costs by the principal.

Nevertheless, a market survey has shown that, according to several commercial agents, this latter situation has been causing problems. According to the interviewed agents, several principals are trying to save money by passing on costs to their commercial agents. This has been leading to a decrease in the commercial agent's net income. The commercial agent often has to endure this situation as the change provides no strong grounds for terminating the commercial agency contract at the principal’s expense.

Two legislative proposals seek to extend the protection of the commercial agent

Two legislative proposals are now seeking to extend the protection of the commercial agent and are proposing an amendment to Book X of the Belgian Economic Code. This amendment provides that any unilateral increase or extension of costs constitutes an act equivalent to termination of the agency contract at the principal's expense. In concrete terms, this means that the commercial agent will then be entitled to termination compensation and possibly also goodwill compensation.

Attention for the principal: reach an agreement with your commercial agent

If this change in the law is approved, then it means that you as a principal can make agreements with your commercial agent about the costs that your commercial agent must bear or pay when entering into the contract. You cannot subsequently unilaterally increase these costs or pass on new ones.

To do so, you would need the agreement of your commercial agent.

If you do not have this agreement, then your commercial agent can terminate the contract.

This amendment has not yet been approved. As soon as it is, we will provide an update here.

For questions concerning the agreements with your commercial agents, you can always contact us at charlotte.vermeersch@altius.com and alexander.hansebout@altius.com.

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