Choosing between Sales Representatives and Commercial Agents in France
Commercial agents and sales representatives are often considered indispensable tools for companies. The two roles, however seemingly similar, are governed by differing legal regimes that delineate the relationship between a company and its commercial agents and/or representatives. This legal framework can be quite important; as a matter of fact, it can affect the company’s liabilities and responsibilities to the agent or representative, notably in terms of effective cost control, such as with regard to remuneration or compensation upon termination.
Under French law, there is a fundamental distinction between the independent commercial agent and the sales representative, i.e., the VRP (voyageur de commerce, représentant ou placier.) This distinction can essentially be distilled down to the agent/employee dichotomy.
The commercial agent in France is exactly that: an independent agent, and not an employee. This is a fundamental departure from traditional Anglo-Saxon legal theory, where an employee is also an agent.
In France, however, the distinction is clear: an agent is not an employee, and an employee is not an agent. Rather, these are two separate categories with differing obligations and benefits. Accordingly, the commercial agent is essentially a freelance agent and no more, while the VRP (i.e., the sales representative), is an employee protected under separate provisions of the French Labour Code.
Commercial agents in France are generally either self-employed individuals or companies acting on behalf of the principal. Under the French Commercial Code, an agent is one who:
- as an independent professional and
- without being bound by an employment contract,
- is responsible on a permanent basis for negotiating, and possibly concluding, contracts of sale, purchase, rental or for the provision of services,
- in the name of, and on behalf of, one or more principals (producers, manufacturers, merchants, artisans or other commercial agents), and
- can be either a legal or natural person.
Commercial agents in France are responsible for negotiating and, in some cases, signing contracts for sales, purchases, leases and provision of services on behalf of their principals. Like VRPs (discussed below), they are permitted to work for one or more companies (as long as they have received informed consent where they act on behalf of competing companies), and are generally responsible for a defined geographical area and/or sector of activity. Generally, they are remunerated by way of sales commission on completed transactions.
A VRP, on the other hand, is a company employee with a special legal status arising from his or her position, in that VRPs are intermediaries employed by one or more companies to visit customers in the representative’s sales territory. VRPs can either be exclusive or multi-carte, i.e., they can work either for a single or multiple employer(s). While VRPs work independently – with their primary responsibilities including making sales calls (i.e., contacting prospective clients to offer goods and services), taking orders and submitting these to their employers – they are nevertheless tied to an employment contract.
The VRP-employer contract is governed under the provisions of the French Labour Code, as well as the provisions of a collective agreement which provides, in relevant part, that the VRP:
- shall work for one or more employers,
- as a representative,
- rather than for himself or herself, and
- shall be contractually engaged to his or her employer, which contract shall specify the nature of the representative’s commitments, the goods and services for sale or purchase, the region in which the representative shall perform such duties, the customers whom the representative must visit and the representative’s remuneration.
As a salaried employee, then, the VRP is obliged to respect both the obligations set forth in his or her employment contract and general employment requirements, e.g., paying income tax. The VRP’s special legal status pursuant to the employment contract also affords the VRP special compensation should his contract be terminated. In addition, all VRPs enjoy the benefits of the social security scheme.
Choosing Between a VRP and a Commercial Agent
Commercial agents differ from VRPs in the most fundamental of ways with regards to their legal status, and the rights and obligations that flow therefrom. Specifically, as indicated above, commercial agents are considered external suppliers and not salaried employees; therefore, specific rules apply upon termination of commercial agents’ agreements. Generally, the agent is entitled to compensation based on gross commissions over the last two years, except in cases of the agent’s manifest breach and/or professional misconduct. The VRP, on the other hand, is protected from dismissal under the stringent and rather employee-protectionist provisions of the French Labour Code. As a result, it is seemingly much more difficult and costly to terminate a VRP as opposed to an agent.
Furthermore, as an employee, the VRP is subject to the income tax applicable to “employees”, which amounts to a 60% tax on 70% of the employee’s earnings. This 60% tax is divided between the employer (40%) and the VRP (20%). In contrast, the commercial agent is subject to the level of tax applicable to the “self-employed” at a rate of 20-25%, which is not borne by the principal in any way. Therefore, hiring an independent agent is more cost-efficient for a company. It is because of this, then, that many small and medium sized companies often prefer to utilise commercial agents in lieu of VRPs, as a flexible and inexpensive means of introducing and distributing their products to foreign markets.
Beyond the obvious cost benefits of hiring commercial agents, however, it should be recalled that a commercial agent is first and foremost independent and freelance whereas a VRP is bound by the terms of the employment contract. This may prove to be a point of contention for some companies, who prefer the clarity and stability of the employment contract, as opposed to the independence (and indeed, freedom to leave) that characterizes the agent-principal relationship.
To this effect, many companies unsurprisingly take advantage of the freedom of contract under French law, drafting an agent-principal contract that balances the agent’s desire for independence with the company’s need to control the transaction. Indeed, such a contract is significantly more flexible than the salaried-employee contract, particularly with regard to such critical issues as amount and methods of remuneration, payment of commissions and compensation upon termination.