The agency agreement is frequently used by foreign companies that don’t have a branch in Italy.
In this Quickguide we will cover some of the most relevant aspects of the agency agreement foreign businesses need to consider before appointing an agent in Italy.
Elements of the agency agreement
The Italian Civil Code (Article 1742) defines the agency agreement as a contract under which one party (the agent) agrees to promote, on an ongoing basis and against remuneration, the conclusion of contracts in a specific geographical area for another party (the principal).
The stable relationship between agent and principal is one of the specific elements of the agency agreement which differentiate it from other similar contracts.
Another particular trait of the agency agreement relates to the autonomy of the agent. Indeed, the agent uses its own means for the promoting activities it carries out on behalf of the principal and could also decide to appoint sub-agents that answer only to the agent.
Also, the geographical area in which the agent operates must be defined. Even if the contract does not explicitly provide for the exact definition of the area, it is still valid if the area can be deduced by referring to the one in which the agent usually operates.
With regard to the form of the agency agreement, it is allowed to conclude an oral contract but article 1742 of the Italian Civil Code requires the written form for the parties to prove its existence and content. It is therefore strongly advised to always enter into a written contract.
Agent’s duties under Italian law
Articles 1746 and 1747 of the Italian Civil Code outline the agent’s duties.
According to these articles, the agent shall:
Article 1746 para. 4 of the Italian Civil Code, prohibits contract clauses that make the agent liable for third party non-performance.
Although not explicitly mentioned in the above articles, the Italian courts recognise the existence of a duty to carry out a constant activity in the assigned area aimed at procuring contracts to the principal.
Principal’s duties under Italian law
The reference article for the duties of the principal is article 1749. It provides that the principal must:
Any contractual clause that aims to reduce or eliminate the above duties is to be considered void.
Duration and termination of the agreement
Article 1750 of the Italian Civil Code provides for the possibility to conclude an Italian law agency agreement that has either a fixed or indefinite term.
Indefinite term agency agreements can be terminated at any time provided parties give appropriate notice which should be not less than:
one month during first year of the contract;
two months if the second year has started;
three months if the third year has started;
four months for the fourth year;
five months for the fifth year;
six months for the sixth and following years.
Party autonomy allows for a longer term, but the principal cannot benefit from shorter notice term to that the agent. The end of the agency agreement should coincide with the last day of the month unless otherwise agreed.
Article 1751 of the Italian Civil Code identifies the instances when the principal must compensate the agent following the termination of the agency agreement. This compensation is due when:
the agent has procured new clients to the principal;
the agent has significantly expanded commerce with existing clients and the principal is still receiving substantial benefits from it.
Parties can sign a non-compete agreement following the termination of the contract. Article 1751 bis states that this should be in writing and refer to the same area, clients, goods and services of the agency agreement. The duration of the non-compete agreement should not exceed two years after the termination of the agency agreement.