Commercial representation relationships continue to be a frequent source of litigation in Brazil, particularly when disputes arise over commission calculations, contract termination, and indemnities.
Below, we highlight the main points of attention based on prevailing case law, so your company can be prepared and avoid unexpected issues:
1. Commission calculation based on gross value, not net: The prevailing case law establishes that commissions owed to commercial representatives must be calculated on the gross value of goods, without deducting discounts, taxes, or abatements. Attempts to use the net value as the calculation basis may lead to legal challenges and judgments requiring payment of differences, including retroactive amounts, which can have a significant financial impact on the company.
2. Prohibition of del credere clause and penalizing the representative: Brazilian Courts are unanimous in prohibiting the del credere clause, which shifts the risk of the buyer’s default or late payment to the representative. In other words, the representative cannot be held liable for losses resulting from the end customer’s non-payment. The responsibility for collection lies solely with the contracting party, and any attempt to impose penalties on the representative in this regard is likely to be deemed void by the courts.
3. 1/12 indemnity on commissions and advance payment: Brazilian law (Law No. 4,886/65) provides that, in the event of termination without just cause, the commercial representative is entitled to an indemnity equivalent to 1/12 of the total remuneration received during the contract period. This right also applies to any commission differences that may be identified. Many companies are unaware of this calculation or attempt to exclude it contractually, but the courts tend to protect the representative, making this one of the main sources of litigation. It is important to note that advance payment of this indemnity is generally considered void, but the offsetting of amounts already paid is allowed, making the nullity merely formal.
4. Exclusivity, territory, and non-compete clauses: Clauses regarding exclusivity, territorial limits, and non-compete obligations must be drafted with precision and clarity. Ambiguities in these areas are frequently exploited in litigation and can result in unexpected judgments against the company, including for alleged breaches of exclusivity or operations outside the agreed territory. It is advisable to clearly detail the conditions of exclusivity, territorial boundaries, and non-compete rules, as well as to keep clear records of any contractual amendments.
5. Indemnity for lack of prior notice: If the commercial representation contract is terminated without justified cause and without proper prior notice, the company must indemnify the representative for an amount equivalent to the last three months’ remuneration. This is a well-established principle in the courts and aims to protect the representative from abrupt terminations, ensuring time for professional reorganization.
6. Unilateral reduction of commissions and exceptions: Unilateral reduction of the agreed commission percentage by the contracting party is prohibited by prevailing case law, as it is considered a detrimental contractual change for the representative. However, in exceptional cases, if the representative does not contest the reduction for a long period (generally decades), it may be understood that there was tacit acceptance, waiving the right to claim differences. Nevertheless, it is recommended that any changes to commission percentages be formalized through a contractual amendment and properly justified.
To avoid surprises and costly litigation in commercial representation relationships, it is essential to invest in detailed contracts, maintain robust documentation, and periodically review the agreed terms. Preventive legal counsel is the best way to mitigate risks and protect your company’s interests in this type of relationship. Stay up to date with current case law and review your contracts to ensure security and compliance.
