COMMERCIAL AGENGY – The ability to terminate the contract for gross misconduct while still granting a notice period

Rennes Court of Appeal, June 20, 2023, RG 21/04515

In a ruling handed down on June 20, 2023, the Court of Appeal of Rennes acknowledges that the granting of notice to a commercial agent does not exclude, as a matter of principle, the existence of gross misconduct attributable to the agent.

In this case, a principal notified its commercial agent of the termination of his contract, accusing him of several gross misconduct. However, a notice period of 3 months is granted to the commercial agent. Following this notification, the commercial agent, who carries out its profession within the company LVD as director, asked for the payment of a compensatory termination indemnity by the principal company. The latter refused to pay. As a result, LVD brought an action against the principal before the Commercial Court of Nantes, seeking payment of the termination indemnity, as well as compensation for the 16 missing days of notice.

In a ruling dated June 28, 2021, the Commercial Court dismissed LVD’s claims for termination and notice payments. As a result, the company LVD appealed the decision.

LVD’s claim relied on article L. 134-12 of the French Commercial Code, which stipulates that “in the event of termination of his relationship with the principal, the commercial agent is entitled to compensation for the loss suffered“. The company also invoked article L. 134-11 of the French Commercial Code regarding the calculation of the notice period.  The principal opposed these claims by invoking the gross misconduct committed by the commercial agent. He relied on article L. 134-13 1°, which stipulates that the indemnity provided for in article L. 134-12 is not due when “the termination of the contract is caused by the gross misconduct of the commercial agent“.

The question before the Court of Appeal of Rennes was whether the granting of a notice period by the principal automatically excludes termination of the commercial agent’s contract for gross misconduct. Then, if gross misconduct is compatible with the granting of a notice period, the question arises as to whether this notice period must be set in accordance with article L. 134-11 of the French Commercial Code.

On the first question, the Court of Appeal gives a negative answer. Firstly, like the lower court judges, it recognized the existence of gross misconduct on the part of the commercial agent. In this case, this gross misconduct was characterized by the agent’s lack of interest in his mission, his attitude, his vulgar and aggressive comments towards the principal’s employees, and his constant criticism of the principal’s commercial policy.

Furthermore, the Court states that “the granting of a notice period does not exclude, in principle, the existence of a serious fault attributable to the commercial agent”.

The Court of Appeal adds that “acceptance of a period of notice is only likely to remove the seriousness of the fault”. The words “only likely” therefore imply that it isnecessary to consider the alleged misconduct to assess its compatibility with a notice period. In this case, the Court of Appeal held that “given the nature of the established misconduct, its repeated character, and the clear attacks on the company’s personnel”, the granting of “a certain notice period for termination is not capable of removing the gravity from the gross misconduct”.

Finally, the Court of Appeal ruled that LVD should not be awarded the termination indemnity it had requested.

On the second question, the Court of Appeal once again replied in the negative. It held that the fact that the principal company, “in an effort to manage the situation as best as possible (…), by granting a certain notice period, was not obligated to comply with all the legal provisions relating to notice periods, especially when it is discretionary in the case of gross misconduct”. Therefore, the principal was not bound by the provisions of article L. 134-11 determining the notice period. Thus, the Court of Appeal dismisses the plaintiff’s claim for compensation related to the 16 missing days of notice.

This decision strengthens the principal’s freedom in determining the terms and conditions to terminate the commercial agent’s contract in the event of gross misconduct.