Serious misconduct by the commercial agent must be invoked in the termination letter: the Cour de cassation reverses its position
29 December 2022
Court of Cassation, Civil, Commercial Chamber, 16 November 2022, 21-17.423
In a decision dated 16 November 2022, the Commercial Chamber of the Court of Cassation reversed its position maintained for twenty years, and aligned itself with European case law. From now on, the commercial agent’s fault must be invoked by the principal in the termination letter.
- What does the law say about gross misconduct by a commercial agent?
Article L.132-12 of the Commercial Code states that :
“In the event of termination of his relationship with the principal, the commercial agent shall be entitled to compensation for the loss suffered.
Article L.132-13 of the Commercial Code states that :
“The compensation provided for in Article L. 134-12 is not due in the following cases :
1° The termination of the contract is caused by the gross negligence of the commercial agent; […]”.
The articulation of the commercial agent’s termination indemnity regime is clear:
- the termination indemnity is, in principle, due to every commercial agent.
- except in the cases of exclusion listed exhaustively, including serious misconduct.
- In practice
A company had been acting as a commercial agent for a second company since 2008. On 11 October 2013, a commercial agency agreement was concluded between the two companies.
The principal terminated the commercial agency agreement on 4 March 2016, offering to pay the commercial agent a termination fee.
The principal withdrew his offer, having discovered, after the notification of the termination of the contract, breaches of the commercial agent’s duty of loyalty, justifying, according to him, the non-payment of the legal termination indemnity.
The commercial agent sued the principal for payment of compensation for termination and notice.
Considering that a serious fault had been committed – although discovered after the termination – and that this justified the loss of the right to compensation, the commercial court dismissed the commercial agent’s claims for payment,
The commercial agent appealed against this judgment.
The Versailles Court of Appeal dismissed the latter’s appeal, considering, as did the Commercial Court, that it “It does not matter that, discovered after the termination, a breach of the duty of loyalty is not mentioned in the letter of termination, if this breach, likely to constitute serious misconduct, was committed before the termination. Thus, once again, it was held that the commercial agent had lost his right to severance pay.
As a result of this judgment, the commercial agent appealed to the Court of Cassation, invoking in particular the case law of the European Court of Justice according to which the invocation of a breach that may constitute a serious fault, subsequent to the notification of termination, cannot deprive the commercial agent of his right to indemnity.
- Opinion of the Court of Cassation
The Court of Cassation, in its judgment of 16 November 2022, overturned the judgment of the Versailles Court of Appeal, following the arguments developed by the commercial agent in support of his appeal.
In doing so, the Court of Cassation completely changes its previously well-established case law.
Indeed, for the past twenty years, the Court of Cassation has considered that a commercial agent should be deprived of his termination indemnity even when his serious misconduct, committed during the performance of the contract, was discovered after the notification of the termination by the principal.
This analysis was applied to the following situation: the principal terminates the contract, without mentioning serious misconduct; the agent requests his willingness to receive the public order indemnity; the principal then opposes the serious misconduct of the commercial agent.
The Court of Cassation was consistent: this late invocation of serious misconduct, even during the litigation phase, made it possible to exclude the right to the termination indemnity.
In parallel with the case law developed by the Court of Cassation, the Court of Justice of the European Union (former Court of Justice of the European Communities, ECJThe Court of Justice of the European Communities (ECJ) ruled that the agent’s indemnity had to be maintained if the serious misconduct was subsequently identified or reported by the principal (e.g. ECJ 28 October 2010, case C-203/09, Volvo).
Thus, since 2010, the Court of Cassation was in contradiction with European case law.
This difference in position between the two courts is now over, as the Court of Cassation has now complied with the opinion of the Court of Justice of the European Union.
It thus recalls that the directive does not provide for the possibility for the principal to evade his obligation to pay by invoking serious fault after giving notice of termination of the contractand that by holding the opposite, it has so far added a This is a “ground for forfeiture of compensation not expressly provided for in the Directive”.
in consideration of the interpretation that must be given to Articles L. 134-12 and L. 134-13 of the Commercial Code, it appears necessary [pour la Cour de cassation], to modify the case law of [sa], chamber, [commerciale],“, henceforth holding that ” a commercial agent who has committed a serious breach, prior to the termination of the contract, which was not mentioned in the letter of termination and was discovered afterwards by the principal, so that it did not cause the termination, cannot be deprived of his right to compensation. “
- To go further
Firstly, before notifying the commercial agent of the termination of the contract, the principal must ascertain the seriousness of the misconduct he intends to invoke, i.e. ensure that it can be qualified as serious misconduct.
Secondly, the principal must denounce the agent’s serious misconduct as soon as the letter terminating the contract is sent.
However, the gross misconduct belatedly reported does not seem to be completely ineffective against the commercial agent.
The ECJ judgment referred to above made it clear that the staff member was entitled to compensation if “its payment appeared fair on the facts“.
Therefore, even though serious misconduct that is reported late cannot in itself deprive the agent of his compensation, such serious misconduct may modulate the amount of this compensation, for example by awarding damages to the principal.
On this point, the Court of Cassation recently ruled that the agent’s serious misconduct could deprive him of his indemnity and lead to additional damages for the principal (Cass. Com., 19 October 2022, No. 21-20.681)