A company may promote its products in a variety of ways. While some manufacturers choose to offer their products directly to customers via their retail stores and websites, most opt to work with intermediaries through so-called distribution agreements.
The following are the most popular forms of distribution agreements in Switzerland:
Agency agreement: The agent acts as the manufacturer’s extended arm. The agent facilitates sales of products or enters into sales contracts on behalf of and for the account of the manufacturer.
In a nutshell, a distribution agreement states that the distributor is an independent dealer. The distributor buys the items from the producer and resells them under its name and account. The distributor is responsible for the sales risk.
Franchise agreement: The franchisee is also an independent dealer, but they distribute products and services by the franchisor’s standard distribution and marketing philosophy.
The parties are allowed to negotiate the conditions within the bounds of the law. Competition law establishes important boundaries. While an agency agreement must conform with numerous statutory aspects of contract law, the parties to the other two kinds have significant leeway in drafting their contracts.
The agent gets compensated depending on performance. It is entitled to the agreed-upon commission on all transactions aided or closed throughout the agency relationship. Unless otherwise agreed in writing, the agent is likewise entitled to a commission on transactions closed by the principal without the agent’s active participation, provided that the agent sought the respective client for such transactions. Suppose an agent is assigned an exclusive territory or client group. In that case, the agent is entitled to a commission on any transactions finished with customers from that territory or customer group, even if the agent did not contribute to completing the corresponding transaction. Because disagreements often develop at the end of a partnership, it is especially important to agree on clear and easy norms for the commissions that the principal owes at and after termination.
If the following requirements are satisfied, an agent may be legally entitled to fair remuneration for customers upon the termination of the agency agreement: The agent’s activities significantly increased the principal’s clientele; the principal benefits significantly from the business relationship with the clientele after the agreement is terminated; the award of such compensation is not inequitable, and the agreement was not terminated for a reason attributable to the agent. The maximum compensation amount is equal to the agent’s net yearly profits from the agency connection computed as the average over the previous five years or, if shorter, the average throughout the life of the agreement.
A Narrow Interpretation of Distribution Agreements
There are no special requirements in Swiss contract law that relate to distribution agreements in a broad sense. However, by analogy, rules designed for other agreements may apply to the individual distribution agreement. This may be especially true for agency law rules. The remuneration for clientele is the most prominent example of such an analog application. The Federal Supreme Court specified the grounds for a distributor’s entitlement to clientele reimbursement. In a nutshell, it demands that the distributor’s condition be comparable to that of an agent. The Federal Supreme Court considered the amount of autonomy of the distributor: the more restricted the distributor’s autonomy and the greater its integration into the seller’s sales team, the more likely the distributor would be entitled to compensation. This determination must be made on a case-by-case basis, considering the specific circumstances.
Franchise agreements may be subject to rules created for other sorts of agreements. Aside from sales agent legislation (e.g., the claim for clientele compensation), individual labor law rules may apply by analogy to safeguard franchisees, especially under a subordination franchise agreement where the franchisee lacks control over its business choices (similar to an employee). The more the franchisee’s lack of autonomy, the greater the possibility for labor law to be relevant by analogy.
This risk may be reduced by not placing limits and requirements on franchisees normally placed on employees. It is also critical to mention explicitly in the agreement that the franchisee will continue to be a legally independent entrepreneur with the flexibility to make its own business choices. On the other hand, a judge may reach a different decision after reviewing the whole agreement and how it was executed. The implementation of labor law rules may have far-reaching implications for the franchisor. The franchisor, for example, may be held liable for the franchisee’s social security payments.