Sparked by complaints of supermarket supply chain practices, but now spilling over into business-to-business (B2B) more generally, the European Union has issued a Green Paper(1) on Regulating Unfair B2B Practices. Of particular interest is the suggestion that minimum notice periods should be mandated. This is similar to some civil law concepts of fair notice periods, such as the French law on abrupt termination and Belgian mandatory compensation for distributors, but it has hitherto been alien to common law jurisdictions. In common law jurisdictions the will of the parties prevails and the notice period is that provided for by contract. There is no need to further protect the distributor or penalise the supplier on termination. Though often seen as protecting weak distributors, such terms must be considered, since the appointment of powerful local distributors is the only way that suppliers can penetrate new markets. If mandatory notice periods (or compensation in lieu) operate as substantial exit penalties for the supplier, it may think twice before entering new markets or wait until it can do so through vertical integration or some other less expensive mechanism.
The relevant paragraph of the Green Paper states:
"5.6. Unfair Termination of a Commercial Relationship
Sudden and unjustified termination of a commercial relationship or termination without a reasonable period of notice may also be a major type of [Unfair Trading Practice or "UTP"]. While ending a relationship is part of business life, it should not be used as a means to bully a contracting party by refusing to justify this decision or by not complying with a reasonable notice period.
Elements of a fair practice could be that contracting parties should ensure fair termination of contracts. Contracts should be terminated in compliance with the law applicable to the contract, while giving sufficient notice to the party on whom termination is imposed for it to recoup its investment."
The paper also states that unfairly restrictive territorial restraints should be examined under the same 'unfairness' rubric, although it is hard to see what more could be said over and above general EU competition law principles.
There is likely to be substantial lobbying on the subject of such unfair consumer practices and the proposal is some time away from becoming a legislative proposal.
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