Status of commercial agents: European Court of Justice rules on the term "negotiation" and contradicts the French Court of Cassation

ECJ, June 4, 2020, Trendsetteuse SARL v. DCA SARL, C-828/18

In a recent decision, the European Court of Justice (ECJ) has contradicted the French Court of Cassation on the classification of commercial agents.  According to the ECJ, an individual does not necessarily have to be able to modify the prices of the goods they sell on behalf of their principal in order to be classified as a commercial agent.

It is an understatement to say that this decision was long awaited by distribution law practitioners. For the past 12 years, the French Court of Cassation has consistently ruled that an agent who does not have the power to negotiate the terms of a contract (price and commercial terms) in the name and on behalf of its principal cannot benefit from the status of commercial agent provided for in Articles L.134-1 et seq. of the Commercial Code, transposing the European Community Directive 86/653/EEC of 18 December 1986 (Cass. com., January 15, 2008, No. 06-14698, Bull. Civ. IV No. 4; Cass. com., December 9, 2014, No. 13-22476; Cass. com., June 19, 2019, No. 18-11727).

The Court of Cessation's very strict interpretation of the notion of negotiation used in article L.134-1 is not only criticised by the legal doctrine, but also contradicts the approach adopted by the legislatures of several other European Union Member States, and with the analysis of other European Union courts (see High Court, 23 Apr. 2008, Nigel Fryer: 2 Lloyd's Rep 108, [2008] EWHC 767). What's more, it has faced resistance from several courts of appeal, as well (CA Rennes, 28 Apr. 2015, no. 12/04294; CA Toulouse, 28 Feb. 2018, 17/01857; CA Lyon, 8 Mar. 2018, no. 16/04620).

The impact on agents who do not have the power to negotiate their principals' tariffs and commercial terms is considerable, because it deprives them of the protective regime applicable to commercial agents. In particular, they cannot rely on the termination indemnity provided for in Article L.134-12 of the Commercial Code, which is generally set by French courts at the equivalent of two years of remuneration (including, notably, the commissions and the reimbursement of expenses, if any).

Many companies use agents to promote their products, prospect new clients, and monitor customer relations, but they do not necessarily grant them the power to negotiate their contracts. Furthermore, given the applicable case law of the Court of Cassation, practitioners have become accustomed to excluding the power to negotiate in the agency agreements, to spare the principal the obligation of paying the two year termination indemnity.

An agent who is denied the status of “commercial agent” in the meaning of Article L.134-1 of the Commercial Code is instead considered a "business agent". Business agents are also entitled to a termination indemnity, but:

• such indemnity may be significantly lower than that the indemnity granted to commercial agents (egCA Nîmes, June 2, 2016, No. 15/02087)
• it is not triggered when an agent's dismissal is justified by a legitimate reason, and
• above all, the termination indemnity can be easily excluded by the parties in their agreement, unlike the commercial agent's indemnity.

The stakes related to the definition of the term "negotiate" are therefore high for the agents.

Unlike the Paris Court of Appeal – which had refused to file a request for a preliminary ruling with ECJ, and decided that the concept of "negotiation" did not raise any particular difficulty of interpretation (CA Paris, January 26, 2017, No. 15/04995) – the Paris Commercial Court found that the restrictive interpretation adopted by the Court of Cassation was debatable. As a result, the Court decided to refer a question to the ECJ for a preliminary ruling (TC Paris, December 19, 2018, No 2017/015204).

In its decision of 4 June 2020, the ECJ recalled that the term "negotiate" used in the 1986 directive was an autonomous concept of European Union law that had to be interpreted in a uniform manner in the territory of the Union. In addition, the ECJ considered that the spirit of the text of the directive – as well as its objective of protecting the agents – required that the power to negotiate prices on behalf of the principal could not be a determining condition for classification as commercial agent.

In so doing, the ECJ took the exact opposite view of the French Court of Cassation, which (in principle) now has no choice but to comply with the ECJ ruling.

But will the French Court of Cassation comply? The question can legitimately be raised considering the divergence in case law that has persisted over the years between the Court of Cassation and the ECJ on another major issue: the classification as overriding mandatory rules of the provisions of Directive 86/653/EEC of 18 December 1986.

Indeed, whereas the ECJ has constantly ruled that these provisions were European, overriding mandatory rules applicable whatever the law chosen by the parties to govern their contract (ECJ, November 9, 2000, Ingmar, C-381/98; ECJ, October 17, 2013, Unamar, C-184/12; ECJ, February 16, 2017, Agro, C-507/15), the French Court of Cassation has resisted this position since 2000 (Cass. Com., November 28, 2000, n°98-11.335, Bull. Civ. IV, n°183; Cass. Com., January 5, 2016, n°14-10.628).