Term of the Agency Agreement
If the period of Commercial Agency has not been stipulated, and if it does not even follow from the purpose of the Agency Agreement, the Commercial Agency is conclusively presumed to have been stipulated for an indefinite term.
If a Commercial Agency has been stipulated for a fixed term and if the parties adhere to the Agency Agreement even after the expiry of the stipulated period, Commercial Agency is considered to have been stipulated for an indefinite period.
Termination of the Agency Agreement
Unless stipulated otherwise, if the Agency Agreement has been entered into for a fixed term, as a general principle, the Agency Agreement may not be terminated unless it binds a party for more than 10 years without a good cause. A court shall also extinguish an obligation if the circumstances on which the parties relied when the obligation was created have materially changed to the extent that the obligor (regardless whether the Principal or the Commercial Agent) cannot be reasonably required to be further bound by the Agency Agreement. During a fixed contractual term, no termination for convenience is admissible. If a party fundamentally breaches the Agency Agreement, the other party may withdraw from the contract without undue delay. During a fixed contractual term, no termination for convenience is admissible.
If the Agency Agreement has been entered into for an indefinite term, it may be terminated extraordinarily for good cause and for convenience by complying with certain minimum notice periods. Czech statutory law sets out the following minimum notice periods (depending on the actual duration of the Agency Agreement in question):
- during the first contractual year, a minimum notice period of one month with effect to the end of the month must be complied with;
- during the second contractual year, a minimum notice period of two months with effect to the end of the month must be complied with; and
- during the third and further contractual years, a minimum notice period of three months with effect to the end of the month must be complied with.
If the parties stipulate a longer notice period, the period binding upon the Principal may not be shorter than the period which the Commercial Agent must observe.
Czech statutory law does not provide for a written form requirement with respect to the termination notice. For evidentiary purposes, we recommend setting out such requirement in the Agency Agreement and in any case terminating the Agency Agreement in writing with confirmation of receipt.
Special remuneration as the main consequence of the Agency Agreement's termination
The main consequence of the Agency's Agreements termination under Czech law is that – unless there are certain precluding circumstances – it triggers the Commercial Agent's entitlement to financial compensation in the form of a special remuneration.
The Commercial Agent is, upon the Agency Agreement's end, entitled to a special remuneration, if:
- during the contractual term, the Commercial Agent has acquired business with new customers or significantly increased business with existing customers of the Principal and the Principal continues to derive substantial benefits from such business; and
- payment of indemnity is equitable having regard to all the circumstances of the individual case and, in particular, the commission lost by the Commercial Agent.
The amount of the Commercial Agent's special remuneration is capped: it may not exceed the Commercial Agent's annual remuneration calculated from an annual average of the remuneration gained by the Commercial Agent over the previous five years. Where the Commercial Agency lasted less than five years, the amount of the special remuneration is calculated from the average of the remuneration for its entire duration; where it lasted less than a year, it may not exceed the sum of all commissions paid throughout its entire duration.
The special remuneration is precluded, if:
- the Agency Agreement was terminated by the Principal for good cause which was attributable to the Commercial Agent;
- the Agency Agreement was terminated by the Commercial Agent (unless the termination is justified by circumstances attributable to the Principal or the continuation of the Agency is unreasonable to the Commercial Agent due to its age or an illness);
- the Commercial Agent, based on an agreement with the Principal, transfers the rights and duties arising from the Commercial Agency to a third person; or
- The special remuneration claim was not invoked as against the Principal at the latest one year from the Agency Agreement's end.
Other consequences of the Agency Agreement's termination
The parties may stipulate that after the extinction of the Commercial Agency, the Commercial Agent may not, in a designated geographical area or with respect to a designated group of persons in this geographical area, pursue, on its own account or the account of another, activities of a competitive nature in relation to the Principal's business, including, but not limited to, the activities which he performed for the Principal under the Commercial Agency. A contradicting non-compete clause or one which is stipulated for more than two years from the extinction of the representation is invalid. If a non-compete clause limits a Commercial Agent more than required by the necessary level of protection of the Principal, a court may restrict the non-compete clause.
Any claim arising from an Agency Agreement – except for the special remuneration claim (above) – is subject to a three-year limitation period, starting from the date on which the right could be asserted for the first time provided that the creditor (e.g. the Commercial Agent) gained knowledge (or did not gain knowledge due to its gross negligence) of the debtor and the circumstances creating the obligation. In absence of such knowledge, there is a maximum limitation period of 10 years from the date on which the claim arose.
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