Dismissal of staff after termination of agency agreement

When thinking of an agent, most people think of a person. But an agent can also be a company with personnel. What are the consequences for employees if an agency agreement is terminated? Can the agent make them redundant? And who is responsible for the severance pay? The agent? Or the principal terminating the agreement?

Agency agreement

In an agency agreement, a supplier or manufacturer (the principal) appoints an agent. The agent acts as an intermediary and negotiates on behalf of the principal and, if necessary, enters into contracts with them, in the principal’s name.

The termination of an agency agreement is regulated by law. Both parties may terminate the agency agreement subject to the agreed notice period. A notice period may not be less than:

• One month for agreements terminated after less than one year;
• two months for agreements terminated after less than two years;
• three months for agreements terminated after more than two years.

If no notice period has been agreed upon, the notice period is:

• four months for agreements terminated after less than three years;
• five months for agreements terminated after more than three but less than six years;
• six months for agreements terminated after more than six years.

Employment law implications

An agent can be a person, but also a company with several employees. In that case, the agent enters into an employment contract with the employees.

There is no legal relationship between the employees concerned and the principal. If the principal terminates the agency agreement with the agent, the employment contract between the agent and the employees concerned, therefore, does not end as well.

However, the termination by the principal may lead to serious financial difficulties for the agent. For example, if the principal is the agent’s only client and it will be almost impossible to earn other income within a reasonable period of time. This may be a reason for the agent to terminate the employment contracts with the employees. In this case, however, the agent needs permission from the UWV (Employee Insurance Agency).

The loss of a major supplier need not always lead to a termination of the employment contract. It will also depend on the possibility for reassignment of the employees and attracting other work by the agent. If the UWV or the redundancy committee gives permission for the dismissal, the agent must pay transition compensation.

Compensation for transition compensation?

Can the agent then recover the compensation due from the principal? For example, in the form of termination or compensation payments?

Contrary to unregulated agreements, such as distribution agreements, agency agreements are regulated by law in detail. The compensation on termination of the agency is also regulated by law. In the event of termination where the notice period is not observed, i.e. without notice period, the agent can claim damages. In addition, customer compensation can be claimed even if the termination was made in a regular manner.

The question is whether the agent may also claim the costs for the lay off of staff. In that case, the agent could argue that the termination is unlawful and that the damage suffered by the agent as a result of the termination also includes the compensation to be paid to the staff that is to be made redundant. For this, special circumstances will have to exist and more will have to be argued than just the agent’s obligation to pay the employees’ transition compensation.

When entering into an agency agreement, it is therefore important for agents to have clear agreements on paper regarding the responsibilities for the parties when the agent hires personnel.

Lawyers for agency and distribution

Do you want to learn more about terminating an agency agreement and the employment law implications? Do you have any other questions about agency agreements? Or would you like assistance in a dispute with an employee? Please contact us: