Upon termination of an agency agreement, the agent is entitled to goodwill compensation when they have brought in new customers or substantially expanded existing client relationships, and these customers continue to provide significant benefits to the principal after the agreement ends. The maximum compensation equals one year’s salary, calculated based on the average of the last five years.
Goodwill compensation under Dutch law for commercial agents, also called customer compensation, forms a crucial component of agency law in the Netherlands. Article 7:442 of the Dutch Civil Code regulates this right as mandatory law, meaning parties cannot validly agree beforehand that the agent waives this claim upon termination. You cannot contractually exclude this right before the agency agreement ends.
This protection originates from the European Agency Directive (86/653 EEC), which provides minimum protection to commercial agents across all EU member states. The Dutch legislator implemented this directive into the Civil Code, with the regulation elaborated more extensively than the European minimum requires on certain aspects.
What Conditions Apply for Goodwill Compensation Under Dutch Law?
The agent must satisfy three cumulative conditions to claim goodwill compensation: bringing new customers or substantially expanding the existing client base, the principal continuing to derive significant benefits after termination, and the compensation being equitable considering all circumstances.
New customers or substantial expansion of existing client base
The commercial agent must demonstrate that during the agreement they brought new customers to the principal or substantially expanded transactions with existing customers. A temporary sales increase does not suffice; the expansion of the client base must have a certain permanence. Within 50 words: Dutch Courts have become stricter in recent years on commercial agency disputes in the Netherlands in assessing this condition and expect concrete evidence of client acquisition or revenue growth, as referenced in Article 7:442 paragraph 1 Dutch Civil Code.
Significant benefits after termination
The principal must still derive substantial profit from the customers brought in by the agent after the agency agreement ends. This condition often forms a point of discussion between parties. Therefore, the agent bears the burden of proof: they must demonstrate that the principal continues to benefit from their efforts. In approximately 75% of cases where goodwill compensation is claimed, proof of this continuing benefit plays a crucial role.
Equity of the compensation
Payment of goodwill compensation must be equitable, considering all circumstances. The agent’s loss of commission weighs particularly heavily here. However, the loss of commission may not lead to double compensation when the agent also claims damages. Judges assess equity based on various factors, such as the manner of termination, the duration of the collaboration, and any non-compete clauses.
How Is the Amount of Goodwill Compensation Calculated in the Netherlands?
Calculating goodwill compensation proceeds in three phases: quantifying the benefit to the principal, correcting for equity, and testing against the statutory maximum of one year’s salary calculated over the last five years.
Phase 1: Quantifying principal’s benefit
The first step consists of determining the benefit the principal enjoys from the customers brought in by the agent. Within 50 words: The starting point is the commission the commercial agent received in the last twelve months for these customers, as specified in Article 7:442 paragraph 2 Dutch Civil Code. This amount is then corrected with factors such as the expected duration of the benefit and turnover within the client base. Therefore, as an agent you must carefully track which customers you brought in and what commission they generated.
Phase 2: Equity correction
In the equity correction, judges weigh various circumstances. Does the commercial agent remain active for other principals? Is the termination attributable to the agent? What is the exact extent of the benefit to the principal? The compensation can be reduced, for example, when the commercial agent takes the client base they built up to a new principal. Moreover, the existence of a non-compete clause plays a role in the equity assessment.
Furthermore, the manner of termination plays an important role. An entrepreneur from Amsterdam who worked successfully as an agent for years and is suddenly dismissed without good reason will more likely claim a higher compensation than an agent who resigns without valid grounds.
Phase 3: Testing against maximum amount
Article 7:442 paragraph 2 Dutch Civil Code sets a hard limit: goodwill compensation amounts to a maximum of one year’s remuneration, calculated based on the average of the last five years. If the Dutch commercial agency agreement lasted shorter, the average over the entire duration of the agreement applies. This statutory limitation prevents excessively high compensation and provides principals with some predictability.
Nevertheless, the final amount can differ considerably in practice per situation, depending on the specific circumstances of the case.
When Does the Agent Have No Right to Goodwill Compensation Under Dutch Law?
The legislator formulated three important exceptions where the agent loses their right to goodwill compensation: termination for urgent cause by the principal, termination by the agent themselves (with exceptions), and transfer to a successor with the principal’s consent.
Termination for urgent cause by principal
When the principal terminates the agency agreement due to circumstances attributable to the commercial agent that constitute urgent cause according to Article 7:439 paragraph 3 Dutch Civil Code, the right to goodwill compensation lapses entirely. Within 50 words: Urgent causes include serious breach of contract by the agent, gross negligence, fraud, or other culpable conduct justifying immediate termination. The principal bears the burden of proof here: they must demonstrate the circumstances were so serious that continuation of the agreement could not reasonably be expected.
Termination by the agent themselves
If the commercial agent terminates the agency agreement themselves, they are in principle not entitled to goodwill compensation. However, an important exception exists to this main rule: when the ground for termination can be attributed to the principal, the agent retains their right to compensation. Additionally, the right remains when termination is the reasonable consequence of the agent’s age, disability, or illness, whereby they can no longer reasonably be expected to continue their activities.
A legal advisor from Amsterdam, for example, terminated his agency agreement after the principal systematically paid late and failed to provide essential support. The District Court of Amsterdam ruled this termination was attributable to the principal, whereby the agent was still entitled to full goodwill compensation of €85,000.
Transfer to successor
Finally, the right to goodwill compensation lapses when the commercial agent, with the principal’s consent, transfers their rights and obligations from the agency agreement to a third party. This exception prevents the agent from both profiting from the transfer and from goodwill compensation for the same client base.
What Is the Difference Between Goodwill and Damages in Dutch Law?
The right to goodwill compensation stands separate from potential damages the agent can claim for unlawful termination of the agency agreement, but double compensation for the same loss is excluded under Dutch law.
Damages for insufficient notice period
When the principal terminates the agency agreement without observing the statutory or agreed notice period, they must pay damages. Within 50 words: The amount corresponds to the remuneration the agent would have received during the remaining notice period. For an agency agreement lasting longer than six years, the minimum statutory notice period amounts to six months according to Article 7:437 Dutch Civil Code.
Cumulation of compensation
The agent can claim both goodwill compensation and damages, provided no double compensation occurs. The loss of commission is already discounted in the goodwill compensation, so no additional damages can be awarded for this. However, the agent can claim additional damages for other items, such as investments made that they can no longer recoup due to premature termination.
Moreover, the nature of termination plays a role. With unlawful termination by the principal, both compensations can be owed simultaneously, whereas with lawful termination with correct notice period, only goodwill compensation comes into question.
What Deadline Applies for Claiming Goodwill Under Dutch Law?
The agent must notify the principal within one year after the end of the agency agreement that they claim goodwill compensation, as stated in Article 7:442 paragraph 3 Dutch Civil Code, and after this fatal deadline expires, the right lapses definitively.
Form requirements for notification
The law does not prescribe a specific form for the notification, but sending it in writing and by registered mail is strongly recommended. This prevents discussion about the timing of sending and receipt. State explicitly in your notification that you claim goodwill compensation based on Article 7:442 Dutch Civil Code and preferably immediately provide an indication of the basis of your claim.
Calculating the one-year deadline
The deadline commences on the day following the end of the agency agreement. If the agreement ends on December 31, 2024, for example, you must make your claim known by December 31, 2025 at the latest. Ultimately, within this deadline you need not yet provide an exact calculation or start legal proceedings; a timely notification of your claim suffices.
How Does Dutch Law Relate to Other EU Countries?
The European Agency Directive guarantees a minimum level of protection for commercial agents across all EU member states, whereby member states have freedom to implement the regulation more broadly than the European minimum prescribes.
The Netherlands implemented the directive more broadly on various points than strictly required. Thus, the Dutch regulation applies not only to agency agreements concerning purchase and sale of goods, but also to services. Furthermore, Dutch law recognizes specific rules about non-compete clauses that go beyond what the directive requires.
Difference with Belgium
Belgian law recognizes a comparable regulation for goodwill compensation but deviates from Dutch rules on detailed levels. Belgian judges apply different criteria in the equity assessment, for example, and award higher compensation in certain cases. Therefore, for international agency agreements, establishing beforehand which law applies is crucial.
Cross-border situations
When a Dutch principal collaborates with a foreign agent or vice versa, the applicable law determines which rules apply upon termination. Within 50 words: The Rome I Regulation provides the framework for this within the EU. However, regardless of the choice of law, the minimum protection from the Agency Directive always applies when the agent performs their activities within the EU.
Would you like certainty about your legal position upon termination of an agency agreement? Our specialized lawyers in Amsterdam analyze your situation and advise on the best strategy for obtaining appropriate goodwill compensation.
What Are Common Pitfalls With Goodwill Compensation in the Netherlands?
Both agents and principals regularly make avoidable mistakes upon termination of an agency agreement, leading to lengthy legal proceedings and unexpected financial consequences under Dutch law.
Insufficient evidence of client acquisition
Agents often fail during the term of the agreement to maintain detailed administration of customers brought in and revenue generated. Consequently, upon termination they can hardly demonstrate that they meet the requirements for goodwill compensation. Courts expect concrete evidence, such as correspondence with new customers, order confirmations, and commission statements. A general assertion that “many new customers were brought in” absolutely does not suffice.
Incorrect assessment of limitation period
Some agents confuse the one-year deadline for notifying the claim with a limitation period. However, this is not a limitation period but a forfeiture deadline: after one year expires, the right lapses definitively and irrevocably. Subsequently, the right can no longer be saved by, for example, force majeure or unforeseen circumstances. Therefore, you must always notify your claim timely, preferably directly after termination.
Underestimating impact of non-compete clause
Principals regularly overestimate the extent to which a non-compete clause influences goodwill compensation. Although a non-compete clause can weigh in the equity correction, it does not automatically lead to lower compensation. The judge assesses all circumstances in mutual context, whereby the reasonableness of the clause and its actual compliance are relevant.
Practice Example: Calculating Goodwill Compensation in Amsterdam
A contract law specialist from Amsterdam worked five years as a commercial agent for an international software supplier. During this period, they brought in 40 new customers who together generated €200,000 annually in license fees. The agent received 15% commission on this, thus €30,000 per year. After five years, the principal terminated the agreement with a notice period of six months.
Phase 1: Quantifying benefit
The starting point forms the commission over the last year: €30,000. The judge estimated the principal would benefit from these customers for an average of five more years, corrected for expected customer turnover of 20% per year. This led to a quantified benefit of €120,000.
Phase 2: Equity correction
The judge reduced this amount by 30% to €84,000, because the agent immediately went to work for a competitor and took some smaller customers along. Nevertheless, the vast majority of the client base remained with the principal, whereby substantial compensation was justified.
Phase 3: Maximum amount
The average annual salary over five years amounted to €32,000 (varying from €25,000 in the first year to €38,000 in the last year). The corrected amount of €84,000 exceeded this maximum substantially, whereby the goodwill compensation was established at €32,000.
Ultimately, the agent received besides this goodwill compensation also damages for costs they had incurred for a new showroom, in the expectation that the collaboration would continue.
