Commercial agent, or a managed route?
What Directive 86/653/EEC gives a commercial agent when the contract ends, how it differs from a distributor, and the routes manufacturers use instead.
Council Directive 86/653/EEC governs self-employed commercial agents who have continuing authority to negotiate the sale or purchase of goods on behalf of another party. It gives the agent minimum notice periods that the parties may not shorten, and on termination, subject to the conditions and exceptions in Articles 17 and 18, either an indemnity, capped at one year’s remuneration averaged over the preceding five years, or compensation for damage, which carries no such ceiling.
Suppose a B2B equipment maker is offered an exclusive European agency by a well-connected individual who already sells into the right plants. The offer reads well. Before signing, the maker’s finance lead asks one question nobody in the room can answer: if this does not work, what does it cost to end it in three years? The answer is written into European law, not into the draft contract on the table.
Agent, distributor, and the line the Directive draws
A commercial agent does not buy your goods. The agent is a self-employed intermediary with continuing authority to negotiate sales on behalf of another person, earns commission on the business brought in, and never takes title or credit risk. A distributor does the opposite: it buys the goods outright, resells at its own margin, carries the stock and the receivable, and is not covered by the Directive at all.
The label on the document does not decide which one you have. The facts do. A party that negotiates in your name, on commission, for your account is inside the Directive’s scope even if the contract calls it something else. That is the first thing a manufacturer should check before reading any termination clause, because everything below follows from it.
What minimum notice does an agent get?
The Directive sets minimum notice for agency contracts of indefinite period, and the transposed text is explicit that the parties may not agree on shorter periods: one month in the first year of the contract, two months in the second year commenced, three months in the third and subsequent years. Longer notice may be agreed, provided the notice the principal must give is not shorter than the notice required of the agent.
For a manufacturer, the practical effect is that an agency you want out of is not a thirty-day arrangement after the second anniversary. It winds down on a statutory clock.
Indemnity or compensation on termination
On termination the agent is entitled, under Article 17, to be indemnified or to be compensated for damage. Those are two different remedies with two different price tags, and neither is automatic.
The indemnity is conditional and capped. Under Article 17(2) it is due if and to the extent that the agent has brought the principal new customers or significantly increased the volume of business with existing ones, the principal continues to derive substantial benefits from that business, and paying it is equitable in all the circumstances. Its amount “may not exceed a figure equivalent to an indemnity for one year calculated from the commercial agent’s average annual remuneration over the preceding five years”, and where the contract is shorter than five years it is calculated on the average for the period in question. Compensation for damage, under Article 17(3), covers the damage the agent suffers as a result of the termination, and the Directive sets no monetary ceiling on it.
Article 18 then removes both remedies in three situations: where the principal terminated because of a default by the agent that would justify immediate termination under national law; where the agent terminated, unless that is justified by circumstances attributable to the principal or by the agent’s age, infirmity or illness; and where the agent, with the principal’s agreement, assigned the contract to someone else. Article 17(5) adds a time limit: the agent loses the entitlement if it has not notified the principal within one year of termination that it intends to pursue it.
Which limb applies is not a detail the manufacturer chooses casually. Article 17(1) leaves the choice between the two models to each member state, so it is set by the law of the member state where the agency operates and, in some transpositions, by what the contract provides. In the United Kingdom’s transposition, for example, compensation is the default and indemnity applies only where the contract says so. Member states transposed the Directive differently, so the applicable regime is a question for counsel in the specific market, not an assumption.
Read the equipment maker’s question again with that in mind. Where the conditions are met, the cost of ending a successful agency is a function of what the agent earned while it worked. The better the agent performs, the larger the exit number. That is not a flaw in the drafting. It is the policy of the Directive, which treats the customer relationships an agent builds as something the principal keeps and therefore pays for.
What manufacturers choose instead, and why
Three structures come up repeatedly, and each trades something different.
Appoint a distributor. The distributor buys, stocks and resells, so the Directive does not apply and the exit is a commercial negotiation rather than a statutory entitlement. What you give up is visibility and pricing control. You learn what your market is doing through your distributor’s ordering pattern, and little else. What a distributor checks before signing, exclusivity included, is set out in what European distributors ask before signing.
Set up your own entity and hire. Full control, full data, full cost. Payroll, an employing entity, local employment law and a hiring decision made before you know whether the market answers. Run the market as a managed engagement. The work of mapping buyers, qualifying them, approaching them and managing the relationship month after month is bought as a service, while the manufacturer keeps title to the goods, sets the prices, and signs its own contracts with the buyers it approves. The party doing the work is a supplier under a service agreement, not an intermediary negotiating in the manufacturer’s name, which is a different legal relationship from the one the Directive describes.
None of these is the right answer in the abstract. They are different answers to the question of how much control, cost and exit exposure a manufacturer wants to carry in a market it does not yet know.
How this runs at EFC
EFC does not act as a commercial agent and is not appointed as one. Business development is an engagement: EFC does the mapping, the rating, the approach work and the monthly management, and the client decides and approves. Which buyers to approach, what is said to them, what commercial terms are offered and which relationships are signed are all client decisions, taken at named approval points before the work moves on. How the engagement runs sets out those approval points and the reporting rhythm.
That arrangement also sits next to the physical side. Where a client holds stock in Europe with EFC, the commercial work and the fulfilment run through one operation, with logistics quoted separately, and importer of record covers who is named on the imports. The legal form of any relationship a client ends up signing with a European buyer, and with EFC, belongs in the contract and is a matter for the client’s lawyers.
What this article is not
This is a description of what Directive 86/653/EEC does, not legal advice, and it cannot substitute for advice on your situation.
Two boundaries matter. The Directive is a directive, which means each member state transposed it into its own law, and the differences are real: which termination remedy applies, how it is calculated, and how national courts read it all vary by country. The termination provisions quoted here are the Directive’s own Articles 17 and 18; the notice periods are cited from a national transposition, identified in the sources below, which reproduces them in the same terms.
And the form of the agreement is for counsel. Whether a proposed relationship is an agency, a distribution arrangement or a service engagement is a legal characterisation with consequences, and it should be settled by a lawyer in the market concerned before signature, not inferred from a heading.
The distributor route, run in practice, is described in how a European distributor search runs.
Sources
| Label | Value | Source |
|---|---|---|
| Scope of the rules | self-employed intermediary with continuing authority to negotiate the sale or purchase of goods on behalf of another person | The Commercial Agents (Council Directive) Regulations 1993, SI 1993/3053, regulation 2(1), transposing Directive 86/653/EEC. legislation.gov.uk, opened 2026-09-09 |
| Minimum notice | 1 month in the first year, 2 months in the second year commenced, 3 months in the third and subsequent years; parties may not agree shorter | SI 1993/3053, regulation 15(2) and 15(3). legislation.gov.uk, opened 2026-09-09 |
| Indemnity, conditions | due “if and to the extent that” the agent brought new customers or significantly increased business with existing ones, the principal continues to derive substantial benefits, and payment is equitable | Directive 86/653/EEC, Article 17(2)(a). EUR-Lex; text as retained at legislation.gov.uk, opened 2026-09-09 |
| Indemnity ceiling | may not exceed a figure equivalent to an indemnity for one year calculated from the commercial agent’s average annual remuneration over the preceding five years | Directive 86/653/EEC, Article 17(2)(b). legislation.gov.uk, opened 2026-09-09 |
| Compensation alternative | compensation for the damage suffered as a result of the termination; no monetary ceiling stated | Directive 86/653/EEC, Article 17(3). legislation.gov.uk, opened 2026-09-09 |
| Exclusions | not payable where the principal terminated for the agent’s default justifying immediate termination, where the agent terminated without justification, or where the agent assigned the contract with the principal’s agreement | Directive 86/653/EEC, Article 18. legislation.gov.uk, opened 2026-09-09 |
| Time limit | entitlement lost if the agent has not notified the principal within one year of termination | Directive 86/653/EEC, Article 17(5). legislation.gov.uk, opened 2026-09-09 |
Note on the primary text: the Directive itself is published on EUR-Lex at eli/dir/1986/653 and under its CELEX record. Articles 17 and 18 are quoted from the Directive itself. The notice periods are cited from the United Kingdom’s transposition, the Commercial Agents (Council Directive) Regulations 1993, SI 1993/3053, which reproduces them in the same terms; the Directive is the governing text.