Commission accrued by a “coordinator” agent should not to be included in the calculation of the termination indemnity payable under agency agreements

By means of judgment No. 25740 of 15 October 2018, the Court of Cassation has established the important principle that commission accrued by a “coordinator” agent, meaning an agent whose commission is based on the commission earned by the sales network he/she coordinates, should not to be taken into account in the calculation of the termination indemnity due under the agreement.

The Facts

A sales agent resorted to the Court for the employer to be ordered to pay an indemnity in the event of termination of the relationship pursuant to art. 1751 of the Italian civil code, in relation to an engagement to promote and place financial products.

The Court dismissed the application and the agent filed an appeal, which confirmed the decision of the trial court.

In that specific case, the local Court highlighted that:

–       the agent had failed to demonstrate that, following the termination of the agency agreement, the employer had continued to enjoy significant benefits, and

–       the payment of an indemnity pursuant to art. 1751 of the civil code, for the work the agent had carried out as the “team manager” (coordinator of a group of agents), could not be deemed lawful. Indeed, according to the Court of Appeal, this would have constituted a double payment to be borne by the employer (to the individual agent who had concluded the transaction and to the team manager), thus, in contrast with the principle of equity cited by the same art. 1751 of the civil code.

The ruling of the Court of Cassation

In confirming the decision of the trial court, the Court of Cassation observed that the intention of art. 1751 of the civil code was to make the payment of the indemnity subject “not only to an increase in the customer base, or, alternatively, to a significant increase in the volume of business transacted with the employer’s existing customers, but also to the employer’s continued enjoyment of significant benefits from such customer relationships, which, therefore, must continue in existence for a reasonable length of time”.

Indeed, art. 1751 of the civil code provides that “On termination of the relationship, the employer shall pay the agent an indemnity if the following conditions are met: the agent has acquired new customers for the employer or has significantly increased the volume of business transacted with existing customers and the employer still receives significant benefits from the business concluded with such customers; the payment of said indemnity is fair, taking into account the circumstances of the case, specifically the commission which the agent would lose on the business transacted with such customers”.

Consequently, the Court of Cassation took the view that the provision in question is “clear in its intention to reward, by means of the payment of an indemnity, any promotion activity that is directly aimed at customers, both in the more dynamic terms of acquiring new customers and in terms of increasing the volume of business concluded with those already acquired, and to link any such reward to a particular and evident interest of the employer and a significant commitment on part of the agent (thus deserving of an economic reward).

In any event, in full alignment with the ruling of the Court of Appeal, the Court of Cassation highlighted that adding the indemnity set out in art. 1751 of the civil code to the commission received by the agent for having coordinated the team of agents would be in contrast with the principle of equity referenced in the provision in question. This is because the employer would be obliged to make a double payment – to the individual agent who concluded the transaction and to the team manager.

Conclusions

In essence, it is clear from the foregoing ruling that in awarding a termination indemnity pursuant to art. 1751 of the civil code, the commission received for the activity of coordinating a team of agents should not be taken into account, since such commission is paid for business that is acquired not directly and personally by the agent but by the other agents he/she manages.