Tips for foreign companies with commercial representatives.

Foreign companies from varied economical branches choose to enter the Brazilian market by contracting a commercial representant in Brazil, as happens in many parts of the world. However, often these companies are unaware of some relevant legal aspects that regulate the commercial representation locally, especially when it comes to the specific rules connected to the contract termination and its consequences.

Key aspects for the termination of commercial representation contracts for foreign companies.

In this article we analysed the hypothesis of termination of commercial representation contracts with indetermined expiry term and without cause, promoted by the principal.

In accordance with Law n. 4.886, from 9 December 1965, that regulates this subject, if the principal would terminate the contract without cause, the agent should immediately receive the total value of the pending commissions, even if there are invoices with outstanding payments, at the moment of the contract termination.

Nonetheless, in such cases, the principal should also compensate the agent. The value of this indemnification must be, at least equivalent to 1/12 of the total value of the commissions earned by the agent during the whole period of duration of the contract.

An important observation to be made, is that any of the contracting parties can terminate the representation contract without an expiry term – that has had a period of validity of, at least, six months – as long as they refer to the counterpart no less than 30 days prior to the termination. Otherwise, the party that terminates the contract should pay the other party 1/3 of the value of commissions that the agent earned in the three previous months.

It is also paramount to highlight those modifications to the aforementioned rules has been an object of discussion recently, through proceedings of legislative proposals in the National Congress. The goal of such projects is to provide to these commercial relationships a higher degree of juridical security and predictability, between the companies and their representatives. Among the possible modifications being discussed, the main ones are the possibility of limiting the base-period for the calculation of the indemnification of 1/12 of the value of the commissions and also the possibility of an annual payment corresponding to the value of 1/12, as an anticipation of a future indemnification. However, there have not been any effective modifications in the existing legislation thus far.

RUCR Law offers services for foreign groups that intend on entering in the Brazilian market with their products and services, by making contracts with commercial representant agents locally. We are always aiming at guiding our clients and making them aware about the risks and peculiarities within the Brazilian Law.