Termination of a VRP contract has specific legal consequences. The system is characterised by special indemnities, in particular the customer indemnity. The financial stakes are often considerable. Employers and sales representatives alike need to master these rules to safeguard their rights.
Grounds for terminating a sales representative's contract
The termination may be attributable to the employer or the representative. Whether the termination is attributable to the employer or the representative determines entitlement to specific compensation.
Termination attributable to the employer
Dismissal is the main cause. In other situations, the employer is liable:
Non-performance of contractual obligations. The termination is attributable to the employer:
- Does not pay commissions due
- Does not supply the necessary samples
- Does not send tariffs or instructions
- Competes directly with the sales representative in his sector
Unilateral amendment of the contract. The sales representative may refuse:
- A change of sector
- A reduction in the commission rate
- A change in the method of remuneration
- A change in the product range
Case law considers these elements to be essential. Changing them without the agreement of the sales representative will result in dismissal without real and serious cause.
Encouraging resignation. The Court of Cassation reclassifies as dismissal a resignation caused by the employer's failings. Systematic delays in the payment of commissions and obstruction of canvassing justify this requalification.
Retirement. Article L. 1237-5 of the French Labour Code provides a framework for such termination. The employer may retire an employee who has reached the required age. In terms of compensation, this is treated as a dismissal.
Termination attributable to the sales representative
Resignation. It presupposes a clear and unequivocal intention to terminate the contract. The length of the notice period depends on the length of service.
Resignation is sometimes the result of a "transfer of card". In this case, the sales representative presents a successor to the employer. If the employer approves, the sales representative resigns after receiving from the successor a sum generally equal to two years' commission.
Voluntary retirement. Termination at the representative's initiative entitles him to a retirement indemnity, the amount of which depends on his length of service.
The effects of the break-up
Observing a notice period
The notice period is binding on both parties. Its minimum duration is set by article L. 7313-9 of the French Labour Code:
- One month during the first year
- Two months during the second year
- Three months beyond the second year
During this period, the contractual obligations continue. In particular, the employer must:
- Enabling sales reps to prospect
- Provide the complete collection
- Respecting the exclusivity of the sector
- Paying commission
Failure to fulfil these obligations justifies the immediate termination of the notice period by the sales representative.
No notice is due in the event of:
- Termination by mutual agreement
- Termination during the trial period
- Force majeure
- Serious misconduct by a sales representative
Compensation in lieu of notice is equivalent to the remuneration that the sales representative would have received during this period. It is calculated on the average of the last twelve months.
Legal indemnities
Redundancy pay. A dismissed sales representative is entitled to this allowance if he has eight months' uninterrupted service. It cannot be combined with customer compensation.
Compensation for dismissal without real and serious cause. It punishes unjustified dismissals. The judge awards it in cases of:
- Unilateral amendment of contract without legitimate reason
- Unfair competition by the employer in the VRP sector
- Unjustified refusal to pay commission
Retirement indemnity. A representative who retires voluntarily is entitled to the indemnity provided for in article 6 of the national agreement on the monthly wage scheme of 10 December 1977.
Retirement indemnity. The minimum amount is equal to the redundancy payment and is payable to the VRP who is retired by the employer.
Customer allowance
A fundamental element of the status, this indemnity compensates for the loss of the benefit of the customer base developed by the sales representative.
Terms and conditions
Three cumulative conditions are required:
Termination of the contract must be attributable to the employer. Compensation is payable in the event of:
- Dismissal without serious misconduct
- Early termination or non-renewal of a fixed-term contract
- Retirement
- Justified termination of employment
It is not payable in the event of:
- Resignation
- Voluntary retirement
- Termination by mutual agreement
- Force majeure
However, it remains payable in the event of termination of the contract as a result of an accident or illness resulting in the representative's total permanent incapacity to work.
No serious misconduct on the part of the sales representative. Serious misconduct is defined as misconduct that makes it impossible to maintain contractual relations. Serious misconduct includes
- Breach of an exclusivity clause
- Taking a competing card without authorisation
- Absence of activity reports requested by the employer
- Acts of unfair competition
- Denigration of the employer's products
The sales representative must have contributed to an increase in customer value. He has to prove that he has:
- Brought in a pre-existing customer base
- Create a new customer base
- Develop existing customers
This development must involve both the number of customers and the volume of business.
Valuation of compensation
The amount must correspond to the actual loss suffered by the VRP. Article L. 7313-13 of the French Employment Code sets out the assessment criteria:
- The sales representative's personal share of the increase in customer value
- Customer reductions attributable to the sales representative
- Special remuneration granted during the term of the contract for the same purpose
In practice, the courts often set the compensation at two years' commission.
Contractual indemnities
The national inter-professional agreement of 1975 created four indemnities that cannot be cumulated with statutory indemnities:
Collective severance pay. It benefits sales representatives:
- At least two years' seniority
- Under 65
- Whose contract is terminated in circumstances giving rise to entitlement to customer indemnity
The amount varies according to seniority, but cannot exceed 6.5 months' salary.
Special severance pay. It replaces the customer allowance for sales representatives:
- Paid in whole or in part by commission
- Under 65
- Whose contract is terminated in circumstances giving rise to entitlement to customer indemnity
This can amount to up to ten months' pay, depending on seniority in the profession.
Collectively agreed severance pay on retirement. It concerns sales representatives:
- At least 65 years old
- Retiring or retired
Special retirement allowance. The amount is equivalent to half the special termination indemnity.
Commissions on the return of samples
This indemnity compensates for the loss of commission that the sales representative could have received on orders obtained after the termination of the contract. It is payable:
- Whatever the reason for termination, even in the case of serious misconduct
- For orders taken after the termination of employment but arising from the sales representative's previous work
- For a maximum period of three months after termination of the contract
To secure the termination of your sales representative contract and obtain all the compensation to which you are entitled, our firm can assist you both in the negotiations and in defending your interests before the competent courts.
Sources
- French Labour Code, articles L. 7311-1 to L. 7313-18
- National interprofessional agreement for sales representatives of 3 October 1975
- Court of Cassation case law on the termination of sales representatives' contracts
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