Upon termination of an agency contract, commercial agents are frequently entitled to claims for compensation under Section 89b German Commercial Code. These claims may be fairly high and often lead to disputes. Occasionally, agency agreements contain provisions according to which agents receive payments already during the term of the contract, which are then to be offset against possible compensation claims.

Such regulations on advance compensation may turn out to be very risky for businesses.

According to recently confirmed jurisdiction (Federal Court of Justice, July 14, 2016, VII ZR 297/15), those agreements may in fact be ineffective and ultimately lead to even higher claims asserted by commercial agents.

On grounds that by law the right to compensation is inalienable, such right may not be excluded or limited prior to termination of the contract. Arrangements to circumvent that right are ineffective as well. While an agreement on advance compensation is actually not a limitation of the compensation claim, such agreements may serve to conceal limitations, however. It is not merely theoretical, but observed in practice that some agreements are simply redefining certain parts of commissions as payments towards the subsequently arising compensation claim, in order to reduce or even waive this claim later. According to the Federal Court of Justice, arrangements on advance compensation are therefore usually to be considered a violation of mandatory provisions and thus null and void under Section 134 German Civil Code.

Those crediting arrangements are only effective where, because of the contractual design, agents received higher compensation than would have been the case if advance compensation had not been agreed. According to the Federal Court of Justice, the burden of proof is borne by the business, not by the agent. In practice, this will be difficult to prove, however. While it may be possible to demonstrate in individual cases that the total compensation paid to the commercial agent is higher than for other commercial agents, businesses need to show, however, whether such compensation is fully comparable in terms of territory, product, or contract design. Even where the agreement of advance compensation is not intended to circumvent the compensation claim under Section 89 b German Civil Code, businesses therefore risk for the scheme to be considered ineffective. As a harsh consequence, these payments will then not only not be credited to the compensation claim, but the right to compensation will even be calculated on the basis of such higher total remuneration since the entire amount is considered to be commission. Businesses that agree advance compensation with their commercial agents may possibly end up worse off than if they had foregone such arrangement.