Local distributors and commercial agents

Distribution relationships

What alternative distribution relationships are available to a supplier?

Swiss contract law is based on the principle of freedom of contract, which allows parties to define the conditions that will govern their contractual relationship at their own discretion. Swiss law is very liberal and particularly attractive for suppliers. Mandatory provisions protecting distributors are rare.

Therefore, a supplier may choose from many possible distribution structures and tailor this structure to its needs. The following distribution structures are frequently used:

  • Distribution or wholesale agreements, under which distributors or wholesalers purchase products from suppliers and resell them in their own name and account to their customers. Distributors or wholesalers bear the marketing and sales risks.
  • Franchise relationships, under which franchisees distribute products and services independently, but under a distribution concept provided by the supplier (franchisor). In exchange for a franchise fee or other forms of compensation, franchisees receive ongoing assistance, training and advice from the supplier (franchisor) and may use the latter’s labels, trademarks, know-how, equipment or other items or intellectual property rights. The franchisor usually reserves the right to issue directives and, thus, to maintain a significant degree of control over the business activities of the franchisee. However, franchisees bear the marketing and sales risks.
  • Commercial agency agreements, under which commercial agents undertake to act on a continuous basis as an intermediary for one or more principals in facilitating or concluding transactions on their behalf, without, however, entering into an employment relationship with their principals. Commercial agents are usually remunerated by means of sales commissions based on the transactions that were facilitated or concluded during the agency relationship. In principle, the principals bear the marketing and sales risks.
  • Commission agreements, under which commission agents sell the products in their own name but for the account of the supplier. In return, they are entitled to commissions. Commission agents are rather rare in Switzerland.
Legislation and regulators

What laws and government agencies regulate the relationship between a supplier and its distributor, agent or other representative? Are there industry self-regulatory constraints or other restrictions that may govern the distribution relationship?

The Swiss Code of Obligations (CO) regulates Swiss contract law. The First Division of the CO (articles 1 to 183 CO) contains general principles of Swiss contract law. These principles also apply to agreements governing distribution relationships.

Some distribution-related contracts, namely commercial agency agreements and commission agreements are specifically governed in the Second Division of the CO.

However, the CO does not explicitly govern numerous other kinds of distribution-related contracts, for example, distribution, wholesale and franchising agreements. They are considered to be ‘innominate contracts’, to which other provisions relating to nominate contracts; for example, agreements for the sale of goods, commercial agency agreements, employment agreements or lease agreements may apply by analogy. For instance, certain employment provisions may apply by analogy to certain franchising agreements. Commercial agency-related provisions, notably the entitlement to a goodwill indemnity pursuant to article 418u CO, might apply by analogy to certain distribution agreements.

The general principles set forth in the Swiss Civil Code (eg, the duty to act in good faith and the prohibition of an abuse of law) also apply to distribution-related contracts. Moreover, parties to distribution-related contracts must comply with the Federal Cartel Act and the Federal Unfair Competition Act. Numerous further laws may apply to parties to distribution-related contracts; for example, tax laws, product safety and liability laws or sector-specific laws (eg, in the foodstuffs or pharmaceutical markets).

As to industry self-regulatory constraints, reference should be made to the Code of Conduct of Swiss Distribution, the former Swiss Franchise Association. The Code of Conduct is binding upon members of Swiss Distribution and contains, for example, rules on pre-contractual disclosure.

Contract termination

Are there any restrictions on a supplier’s right to terminate a distribution relationship without cause if permitted by contract? Is any specific cause required to terminate a distribution relationship? Do the answers differ for a decision not to renew the distribution relationship when the contract term expires?

Generally, no. The freedom of contract entails the freedom of terminating distribution relationships. Parties to distribution relationships can freely (and should) agree in their agreement on the applicable notice periods and on whether any specific cause is required. These agreements can, for example, also combine fixed terms with premature termination rights. Swiss courts tend not to interfere with such contractual termination rights.

However, there are a few exceptions, in particular minimum notice periods for commercial agency agreements: where a commercial agency agreement is concluded for an indefinite period and has lasted for more than one year, it may be terminated by giving two months’ notice expiring at the end of a calendar quarter. This notice period cannot be shortened in the agreements.

Moreover, a supplier who holds a dominant position on a market may be obliged to continue a distribution relationship based on the Federal Cartel Act.

Swiss contract law provides that either party may terminate a long-term contract with immediate effect at any time for good cause, even if this termination right is not included or explicitly excluded in an agreement. Any circumstance that renders the continuation of the distribution relationship in good faith unconscionable and unreasonable for the party giving notice constitutes such good cause. Ongoing violations of a distributor’s exclusivity rights by the supplier or a lasting failure of the distributor to distribute or pay for the goods are possible examples of these circumstances.

Is any mandatory compensation or indemnity required to be paid in the event of a termination without cause or otherwise?

Such entitlement to mandatory compensation (‘goodwill indemnity’ or ‘compensation for clientele’) may exist in particular under commercial agency agreements (article 418 of the CO):

If an agent’s activities have resulted in a substantial expansion of the principal’s customer base and considerable benefits accrue after the end of the agency relationship to the principal from business relations with customers acquired by the agent, the agent is entitled to a goodwill indemnity, provided this is not inequitable. However, the agent has no entitlement where the agency relationship has been dissolved for a reason attributable to the agent. The goodwill indemnity can amount up to the agent’s net annual earnings from the commercial agency relationship.

Article 418u CO may apply by analogy to distribution agreements, meaning that distributors can also be entitled to a goodwill indemnity under certain circumstances. An analogous application of article 418u CO to distribution agreements requires that a distributor be integrated to a large extent into a supplier’s distribution organisation, so that the distributor finds itself in an agent-like position and disposes of only limited economic autonomy.

The parties to an agency or distribution agreement cannot validly exclude an entitlement to a goodwill indemnity in their agreement.

Transfer of rights or ownership

Will your jurisdiction enforce a distribution contract provision prohibiting or restricting the transfer of the distribution rights to the supplier’s products, all or part of the ownership of the distributor or agent, or the distributor or agent’s business to a third party?

Generally, yes. Prohibitions to assign distribution-related rights to third parties are very common. Assignments in violation of these prohibitions are null and void.

Clauses prohibiting distributors or agents from selling their businesses to third parties are not enforceable as such. However, it is common to stipulate extraordinary termination rights with immediate effect in the case of such transfers of ownership (change of control clauses).

Law stated date

Correct as of

Give the date on which the information above is accurate.

11 January 2021.