Compensatory benefit in an agency agreement is due to the agent upon termination of the contract, subject to certain conditions. How much is it and what are the evaluation criteria for determining the amount of compensatory benefit? Below we discuss the most important issues related to this question.
What is a compensatory benefit in an agency agreement?
Compensatory benefit is a specific entitlement of the agent. It results from Article 7643 of the Civil Code. It defines the agent’s right to seek compensation from the principal after terminating the agency agreement. The agent’s actions must meet the following conditions:
- during the agency agreement, the agent acquired new clients, or
- the agent significantly increased turnover with existing clients
- the principal continues to derive substantial benefits from contracts with these clients.
The purpose of the compensatory benefit is to compensate the agent for lost benefits. Namely, commissions that the agent could have earned if the agreement had continued. Obtaining compensatory benefits does not deprive the agent of the right to seek compensation on general terms.
Agent’s compensatory benefit and acquiring new clients
Acquiring new clients in the context of compensation for the agent should consider:
- the number of contracts concluded with new clients, and
- the agent’s contribution and effort that resulted in subsequent benefits.
New clients are those with whom the agent established contact. This business relationship ultimately led to the signing of a contract and subsequent orders over the next few years. You should distinguish them from those transferred to the agent by his predecessor or principal.
Agent’s compensatory benefit and significant increase in turnover with existing clients
According to Art. 7643 § 1 of the Civil Code, a significant increase in turnover with existing clients may be equal to acquiring new clients. Yet, such an increase shouldn’t solely stem from overall economic growth.
To qualify for compensatory benefit, a significant increase in turnover means:
- substantial expansion and intensification of business relations with existing clients,
- higher revenues for the principal resulting directly from the agent’s actions.
Nature of the compensatory benefit
The claim for compensatory benefit is possible if considerations of equity support it. Especially taking into account the loss of commissions from contracts concluded by principal. Such rules ensure the agent’s share in the profits generated through his involvement.
Compensatory benefit and rules of equity
The agent must convince court that the compensatory benefit is justified in given circumstances. This criterion gives courts broad discretion in assessing the legitimacy of the payment.
The court verifies the course of cooperation between the parties, including:
- The value of the agent’s remuneration. Sufficient remuneration during the contract term might negate the need for compensatory benefits.
- The allocation of economic risk. The court evaluates economic risk between the parties. If the burden of acquiring clients rested on the agent only, the likelihood of compensatory benefit increases.
- The manner of contract termination. If termination was for valid reasons and within the notice period, the likelihood of compensatory benefit is lower. The principal’s loyalty also matters.
Conditions for claiming a compensatory benefit
The essence of the compensatory benefit is that the agent can claim it even if the agency agreement lacks specific provisions for it. To file a claim for payment of a compensatory benefit, 4 conditions must be met together:
- The agent’s activities during the term of agreement led to the acquisition of new clients. A significant increase in turnover with existing clients also qualifies.
- The principal continues to derive considerable benefits from contracts concluded with these clients.
- There is a cause-effect relation between the agent’s actions and the profits of the principal.
- Providing compensation to the agent is justified by considerations of equity.
It is the responsibility of the agent to prove that these conditions are met. Moreover, it is the agent who determines the appropriate amount of compensatory benefit.
The value of the compensatory benefit
The law establishes the upper limit of compensatory benefit for the agent. According to it, the amount of compensation cannot exceed the agent’s remuneration:
- for one year,
- calculated based on the average annual remuneration received over the last five years.
If the agency agreement lasted less than 5 years, then the remuneration is based on the average for the entire duration of the agreement.
The methods for determining the amount of compensatory benefit are not legally specified. Yet, case law from foreign and Polish courts provides guidelines on this matter.
The interpretation of the rules for calculating compensatory benefits developed by the Court of Justice of the European Union. Example based on the case of Turgay vs Semen:
| Stage | Description | Important Factors |
| Determining principal’s benefits | Determining the profits obtained by the principal through transactions with clients acquired by an agent. | Number of contracts initiated, continued, or renewed during the agency agreement. |
| Verification of compliance with equity principles | Evaluating the fairness of the stage 1 amount, considering the agent’s lost commissions and case specifics. | Agent’s contribution to subsequent significant benefits, now lost due to termination of agreement. |
| Considering the upper limit | Final adjustment of the amount to the upper limit of compensation. This applies only if the amount from stages 1 and 2 exceeds the limit. | The calculation should not be based on gross remuneration. It should result from the agent’s income after deducting business costs. |
Polish courts adopt the following criteria for determining the value of compensatory benefits:
| Criterion | Interpretation of the Premise |
| Number of contracts | Consider the number of contracts concluded, continued, or renewed during the term of the agency agreement. |
| Agent’s contribution | Take into account the agent’s work contribution aimed at ensuring future significant benefits, which the agent loses due to the termination of the contract. |
| Agent’s income | The calculation should not be based on gross remuneration. It should result from the agent’s income after deducting business costs. |
The database presented in the table results from:
- Judgment of the Supreme Court dated 27 January 2012, file number I CSK 211/11,
- Judgment of the Supreme Court dated 8 November 2007, file number I CK 207/05,
- Judgment of the Court of Appeal in Poznań dated 18 July 2007, file number I ACa 415/07.
Proceedings to claim a compensatory benefit
The procedure for compensatory benefit before court starts upon a written request of the agent. The lawsuit should include, among other things:
- Identification data of the agent and the principal (commissioning party).
- Information about the termination date of the agency agreement.
- Justification of the claim, including information about acquired clients or increased turnover. It should include evidence that the principal continues to benefit from these.
- The amount of the claimed compensatory benefit.
The agent can pursue compensation within a year from the termination of the agreement. After this period, the claim expires.
Compensatory benefit: Summary
Compensatory benefit in an agency agreement is an important right for the agent. An agent is entitled to it after termination of the contract and meeting certain conditions. It applies even if not explicitly mentioned in the agency agreement. This offers fair compensation for the agent’s effort and growth of the profit.
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FAQ – Questions and answers about Compensatory Benefit in an agency agreement
What is compensatory benefit in an agency agreement and when am I entitled to it?
Compensatory benefit in an agency agreement is a claim of the agent which is rightful after contract termination. The compensatory benefit is due if the agent acquires new clients or increases turnover with existing clients during the contract, and the principal continues to benefit significantly from these actions.
What is the maximum amount of compensatory benefit in an agency agreement?
It is the agent’s annual remuneration calculated based on the average annual earnings from the last 5 years.
How can you pursue compensatory benefit?
Submit a written request to the principal within one year of contract termination. The request should include justification. Provide information about acquired clients or increased turnover. You should also provide evidence that the principal continues to benefit from these.
What happens if the principal refuses to pay the compensatory benefit?
In such a situation, the agent can pursue claims through legal action.
Where can I find more information about compensatory benefit in an agency agreement?
More information can be found in the Civil Code (Article 764(3)) and case law. You can also consult with a lawyer.
Can provisions on compensatory benefit be included in an agency agreement?
Yes, the parties to an agency agreement can include provisions on compensatory benefit. However, they cannot be less favourable to the agent than those provided by the Civil Code.
Is compensatory benefit the same as compensation?
Not entirely. The compensatory benefit is based on equity, whereas compensation results usually from damages. This means that an agent can pursue compensatory benefit even if he has not suffered any damages.