Goodwill for a commercial agent under Dutch law is calculated in three phases according to Article 7:442 of the Dutch Civil Code: quantifying the benefits the principal gains from customers brought in by the agent, an equity adjustment based on lost commission and other circumstances, and testing against the statutory maximum of one year’s salary calculated over the final five years of the agreement.
Calculating customer compensation upon termination of an agency agreement follows a fixed legal procedure. Therefore, it is advisable to establish clear agreements beforehand regarding the calculation method. This prevents disputes afterwards and provides both parties with certainty about their position upon termination. Under Dutch law, the three-phase calculation framework protects commercial agents while balancing the principal’s interests. The Dutch Civil Code prescribes specific criteria that courts apply when determining whether and how much compensation is due.
What Is a Commercial Agency Agreement Under Dutch Law?
A commercial agency agreement is defined in Article 7:428(1) of the Dutch Civil Code as an agreement whereby the principal instructs the commercial agent, who commits to provide mediation for a fixed or indefinite period in exchange for remuneration upon conclusion of agreements. The commercial agent potentially concludes contracts in the name and for the account of the principal without being subordinate to them.
The distinction from other forms of cooperation is legally relevant. Whereas a distributor concludes purchase contracts with customers for their own account and risk, the commercial agent mediates between principal and end customers. Precisely this mediating role justifies the entitlement to customer compensation upon termination. Unlike employment relationships, the agent operates independently while building customer relationships that generate lasting value for the principal.
Which Conditions Apply for Goodwill in the Netherlands?
The commercial agent is entitled to customer compensation upon termination under Dutch law when two cumulative conditions are fulfilled. First, the agent must have brought in new customers or substantially expanded agreements with existing customers, whereby these customers still provide the principal with considerable benefits.
Second, payment of the compensation must be equitable considering all circumstances, particularly taking into account the lost commission from agreements with these customers. According to Article 7:442(1)(a) and (b) of the Dutch Civil Code, these conditions form the legal basis for entitlement to goodwill.
Moreover, strict proof applies: before quantification can commence, the agent must demonstrate plausibly that the principal can still expect new transactions to a relevant degree from customers they brought in. This burden of proof rests entirely on the commercial agent. Courts require concrete evidence such as customer lists, transaction histories, and documentation showing ongoing business relationships.
How Does Phase 1 Work: Quantification of Benefits Under Dutch Law?
In the first calculation phase, you quantify the benefits that transactions with customers brought in by the commercial agent provide to the principal. This requires insight into the expected future turnover with these customers after termination of the agency relationship.
The agent must demonstrate plausibly that the principal will actually continue to benefit from the customer relationships they built up. However, this does not involve proving exactly realized benefits – only the plausibility that benefits will occur. In markets that are strongly price-driven, this can be more difficult to prove than in markets where brand image and customer loyalty play a larger role.
A tour operator in the travel market, for example, did not succeed in obtaining goodwill because it was not demonstrated plausibly that customers would book again with the same tour operator. The price-driven nature of that market worked against the agent. Courts examine whether customer relationships possess sufficient stability and loyalty to generate continued business for the principal without the agent’s ongoing efforts.
An entrepreneur from Amsterdam representing specialized industrial equipment successfully claimed €45,000 in goodwill after proving that relationships with three major clients would generate approximately €200,000 in annual revenue for the principal over the following three years.
How Does Phase 2 Work: The Equity Assessment in Dutch Law?
Subsequently, you assess whether the amount established in phase 1 should be adjusted upward or downward in view of equity. In doing so, you weigh all circumstances of the case, particularly the commission lost by the commercial agent from agreements with the customers brought in.
The lost commission is in principle the gross commission, without deduction of costs that the commercial agent saves after termination. However, when a substantial part of the commission was used for covering expenses, the equity assessment takes this into account. This correction possibility prevents unreasonable enrichment of the principal at the expense of the agent.
Other circumstances that carry weight in the equity assessment include the duration of the cooperation, the degree of effort by the agent in customer acquisition, market conditions, and the nature of the products or services. An agent who has intensively built up customers for ten years generally has a stronger position than an agent with a short, superficial relationship. Courts also consider whether the principal provided adequate support, marketing materials, and training that contributed to the agent’s success.
How Does Phase 3 Work: Testing Against the Maximum in the Netherlands?
Finally, you test whether the amount resulting from the two previous calculation phases does not exceed the statutory maximum amount. According to Article 7:442(2) of the Dutch Civil Code, the maximum amounts to one year’s remuneration, calculated based on the average of the final five years or, if the agreement lasted shorter, based on the average of the entire duration.
The Dutch Supreme Court has determined that “remuneration” is a broad concept and therefore concerns the gross remuneration. This means you count all forms of compensation: fixed fee, commission, bonuses, and other remuneration components that the agent regularly received.
For a commercial agency agreement of three years, you calculate the average over these three years. For a long-term agreement of ten years, you take into account only the final five years. This limitation prevents outdated figures from the distant past from distorting the calculation. Courts apply this maximum strictly, meaning goodwill claims exceeding one year’s average gross remuneration will be reduced proportionally.
When Does the Right to Goodwill Lapse Under Dutch Law?
Customer compensation is not payable in three specific situations. First, when the principal terminates the agreement due to an urgent reason attributable to the commercial agent. Under urgent reason fall circumstances of such nature that the principal cannot reasonably be required to maintain the agreement even temporarily.
Second, the right under Dutch law lapses when the commercial agent themselves terminates, unless this termination is justified by circumstances attributable to the principal. Termination due to age, disability, or illness of the agent also gives rise to entitlement to goodwill, provided it can no longer reasonably be required that the agent continues their activities.
Third, the right lapses when the commercial agent, in accordance with an arrangement with the principal, transfers their rights and obligations from the agency agreement to a third party. In that case, the agent retains the economic value through transfer to the successor.
Urgent reasons include serious breach of contract, fraud, persistent underperformance, or conduct that fundamentally damages the principal’s interests. Courts examine whether the principal acted promptly upon discovering the urgent reason, as delay may weaken the justification for immediate termination without compensation.
Which Limitation Period Applies in the Dutch Jurisdiction?
The right to customer compensation expires when the commercial agent has not notified the principal no later than one year after termination of the agreement that they demand compensation. This short expiry period requires timely action by the agent.
Additionally, legal claims from irregular termination prescribe through lapse of one year after the fact that gave rise to the claim. This shortened limitation period deviates from the general limitation period of five years according to Article 3:306 of the Dutch Civil Code. The legislator has deliberately chosen legal certainty within a foreseeable timeframe upon termination of agency relationships.
Do you want certainty about calculating goodwill for your agency agreement? Our specialized lawyers in Amsterdam analyze your situation and accurately calculate customer compensation according to the Dutch Supreme Court’s three-phase framework. We advise both commercial agents and principals on optimal contract terms and dispute resolution.
How Does Goodwill Differ from Damages Under Dutch Law?
Customer compensation is an independent right alongside a potential claim for damages. Whereas goodwill constitutes compensation for the benefit that the principal retains from customers brought in by the agent, damages cover the loss from irregular termination of the agreement.
A principal who terminates without observing the agreed or statutory notice period is liable for damages, unless termination occurs due to an urgent reason that is immediately communicated to the other party. The commercial agent can therefore claim both goodwill and damages when the conditions for both are fulfilled.
Damage claims may include lost income during the notice period, costs of finding new business relationships, and expenses for winding down operations. In approximately 40% of cases, commercial agents pursue both claims simultaneously, with courts assessing each independently based on distinct legal criteria. The total compensation can therefore exceed the statutory maximum for goodwill alone when justified damages are proven separately.
What Are the Main Pitfalls in Dutch Law?
In over 65% of disputes concerning agency agreements, discussion arises about the calculation method of goodwill. Principals often underestimate the amount that is payable, while agents struggle to demonstrate plausibly the benefit to the principal. Moreover, parties regularly forget the one-year expiry period.
A common misconception is that the agent must prove exactly how much benefit the principal actually obtains. However, the law only requires that it be demonstrated plausibly that the principal can still expect new transactions to a relevant degree with the customers brought in. This nuance often determines the difference between granting and rejecting goodwill.
Another frequent pitfall involves incomplete documentation of customer relationships. Agents who fail to maintain systematic records of which customers they introduced, when relationships commenced, and what transaction volumes resulted face substantial difficulty proving their entitlement. Courts require concrete evidence rather than general assertions about customer development.
