This book provides a wide-ranging review of the European rules relating to distribution: exclusive purchase and exclusive supply, exclusive and selective distribution, motor vehicle distribution, franchises, commercial agents.

French Distribution Law

Before being subject to specific regulations, lease-management agreements, which consist in the owner placing the business under management in the form of an agency, were subject to the ordinary law of agency (Civil Code, Article 1984 et seq.). The managing agent is independent because he has latitude in performing his task but must comply with the principal's instructions and does not bear the ri …

Context.

Before being subject to specific regulations, lease-management agreements, which consist in the owner placing the business under management in the form of an agency, were subject to the ordinary law of agency (Civil Code, Article 1984 et seq.). The managing agent is independent because he has latitude in performing his task but must comply with the principal's instructions and does not bear the risks of the operation. Thus, the subordination of the agent has sometimes led the courts to re-characterize such contracts as salaried management . In order to recognize the specific nature of the managing agent's status, being neither an employee nor an entrepreneur, the legislator enacted Law No 2005-882 of 2 August 2005 , which has created a legal status for managing agents under Articles L. 146-1 to L. 146-4 of the Commercial Code. The ordinary law on agency - in particular Articles 1999 and 2000 of the Civil Code - still applies to issues that are not dealt with by the Commercial Code. This method of operation of the business covers all sectors of activity .

Managing agents do not have the status of salaried employee solely because the principal checked that they were capable of exercising their functions as a manager or because they were required over a period of a few months to carry out sales and to operate the cash register: Cass. soc., 23 June 2010, LawLex201000000421JBJ.

Except for the retail food sector which is subject to particular rules (Labor Code, Article L. 7322-1 et seq.).

Article L. 146-1 of the Commercial Code defines the managing agent as the natural person or legal entity who manages a business or craft industry in return for payment of a commission, on behalf of a principal who remains the owner thereof and bears the risks associated with its operation. The agency fixes the mission of the agent who, in this context, is free to set working conditions, take on staff and arrange substitutes for himself within the business at his own expenses and under his own responsibility. The fact that the management of a business is entrusted to him may result in confusion with the status of lease-manager. Thus, an “appointed management contract” ("contrat de gérance appointée") is a lease-management and not an agency-management contract where the owner of the business has not entered the manager as agent in the trade and companies register and does not bring evidence of payment of remuneration . On the other hand, where the manager, in the interest, on behalf and in the name of the owner of the business, takes on staff and makes the necessary purchases for its operation, and reports to the owner regarding his management and operating revenues, this is an agency-management contract . The points of convergence between the two methods of management are however very limited. Outside the obligation of registration in the trade and companies register or the trades directory ("répertoire des métiers") (Commercial Code, Article L. 146-1(3))  and the management of a commercial or craft business, the system of the managing agent is different from that of the lease-manager.

Article L. 146-2 of the Commercial Code requires the principal, before signing the contract, to provide the agent with all the information he needs for his work, as specified by decree , in order to enable him to commit himself in full knowledge of the facts . He is not subject to any condition of personal exploitation, since the speculative risk at the origin of that condition does not exist. The principal cannot include in the contract a potestative clause which allows it to terminate the contract in order to carry out a complete overhaul of the establishment with a view to refocusing its activities, its management or operational method, since it only depends on its will and not on objective circumstances liable to court supervision .

The agent operates the business on behalf of the principal who bears the operational risks. The contract under which, in the case of budget deficits, the manager's unlimited liability is incurred regardless of the severity of the fault, is therefore a lease-management and not an agency-management contract . The mission may also specify the management and operational rules for the business to be complied with and the terms and conditions of supervision that might be made by the principal, without the nature of the contract being challenged (Commercial Code, Article L. 146-1(2)).

The managing agent receives a commission. The remuneration proportionate to the turnover is a characteristic of the status (Commercial Code, Article L. 146-1(1)). A master agreement between the manager and all his managing agents or their representatives must specify a guaranteed minimum commission (Commercial Code, Article L. 146-3). Otherwise, the minimum commission is set by the public authorities.

A fixed remuneration at the end of the contract may also be agreed upon by the parties in order to render void the right of the agent to the repayment of losses incurred in the context of his management.

In order for a non-compete clause purporting to bind a branch manager - even if he is not an employee - to be lawful, it must be limited in time and space , be indispensable to the protection of the legitimate interests of the undertaking, take account of the specificities of the manager's role and provide for the payment of financial consideration .

Finally, the principal may assign the business without the authorization of its managing-agent when the contract is concluded intuitu personae only in respect of the latter . 

CA Paris, 9 March 1995, LawLex200200006205JBJ.

CA Bordeaux, 9 July 1992, LawLex200200004414JBJ.

The capacity as managing agent or lease-manager must be expressly mentioned in the company and trade register (See Commercial Code, Article R. 123-38, 8º and 10º) and the business documents (Commercial Code, Article R. 123-237, 6º).

The pre-contract document must mention the identity of the principal, his address or registered office and his single identification number, the address of the registered office of the undertaking whose business is placed under agency-management, nature of the activities, mention of its legal form, amount of share capital, annual turnover achieved in the course of the last two financial years of the business placed under agency-management, annual balance sheet for these same periods, date of creation of the undertaking whose business is placed under agency-management, reminder on the major steps of its development since its creation, any memberships of the principal in an operator network and nature of the contracts governing memberships to that network, general conditions of management of the business, rates, calculation methods and all other elements used to determine the commission paid to the managing agent and mention of the duration, conditions of renewal, transfer and termination of the proposed contract (Commercial Code, Article D. 146-1). This information must be disclosed to the managing agent ten days at least before the signature of the agency-management contract (Commercial Code, Article D. 146-2).

As part of a lease-management, the owner is subject to a pre-contract information duty only if he has exclusive supply.

Cass. com., 20 September 2011, LawLex201100001522JBJ, for a service station.

Cass. 3e civ., 7 December 2017, LawLex201800000554JBJ.

CA Paris, 17 January 2018, LawLex201800000131JBJ and LawLex201800000115JBJ, voiding a non-compete clause of which the radius - 50 kilometers around the store - seemed too extensive; 12 December 2018, LawLex201800001940JBJ, holding that a non-compete clause is in conformity with Article 101 TFEU and the freedom to exercise a trade when it is limited to the duration of the contract and only to activities competing with those of the principal, which must be defined in detail.

Cass. soc., 19 March 2014, LawLex201400000521JBJ.

CA Paris, 7 November 2016, LawLex201600001875JBJ.

Rights and obligations.

Where the principal puts an end to the contract, and except in case of serious fault by the agent, the latter is entitled to compensation equal to the amount of the commissions earned, or the guaranteed minimum commission for the six months preceding the termination of the contract, or during the term of the contract if it is shorter than six months, unless the parties have agreed more favorable terms (Commercial Code, Article L. 146-4 ). Those special provisions, which do not apply to failure to give reasonable notice, do not preclude claims based on Article L. 442-1, II of the Commercial Code . The principal must also reimburse any advances and expenses which the agent has incurred in the performance of the agency contract (Civil Code, Article 1999) and compensate the agent for any losses incurred during his management, except in the case of recklessness or negligence on his part (Civil Code, Article 2000) , which, according to case law constitutes mismanagement . In effect, the managing agent does not bear the operating risks. 

The agreement may provide for a fixed remuneration intended to compensate for losses suffered as part of the agent's management and his expenses , or an express waiver clause for the benefit of Articles 1999 and 2000 of the Civil Code. This waiver must be unambiguous . Such is not the case where a clause pursuant to which the parties expressly depart from Articles 1999 and 2000 of the Civil Code is found in an article of the agency agreement concerning the subject-matter of the contract rather than the remuneration or accounts to be established between the parties , where the content of those provisions is not fully reproduced in the contract , or where the parties have expressly departed from the application of Article 2000 of the Civil Code but the contract refers to inter-trade agreements which stipulate that “the running of a service station requires the operator [...] to show a positive operating profit” . 

However, even if unequivocal, such stipulations may not undermine any compensation for losses originating in an element of the operation for which control has been retained by the principal , such as its pricing policy  or the conditions of sale of the products, both at the level of expenses and revenues . The compensation covers all losses and not only occasional losses . The limitation period of the manager's action for compensation for operating losses can only begin to run from the date he was aware of the loss, i.e. after the closure of the accounts showing the deficit .

On the other hand, the managing agent must reimburse any missing stock found at the term of the contract. In effect, the goods are held on deposit by the managing agent who is mandated to sell them, and must therefore restitute them in kind or in value when the contract ends .

For an application, see CA Paris, 13 September 2017, LawLex201700001462JBJ.

Cass. com., 2 October 2019, LawLex201900001176JBJ, overturning on that point CA Paris, 17 January 2018, LawLex201800000131JBJ; Cass. com., 20 November 2019, LawLex201900001424JBJ, overturning on that point CA Paris, 17 January 2018, LawLex201800000115JBJ. But see CA Paris, 23 September 2016, LawLex201600001535JBJ; 11 October 2018, LawLex201800001520JBJ; 12 December 2018, LawLex201800001940JBJ; 3 October 2019, LawLex201900001185JBJ.

Cass. com., 31 March 2009, LawLex200900001362JBJ; 18 May 2010, LawLex201000000640JBJ; CA Paris, 31 January 2007, LawLex200900001691JBJ; 11 February 2015, LawLex201500000187JBJ; 28 March 2018, LawLex201800000524JBJ; 3 February 2020, LawLex202000000199JBJ; 1 June 2022, LawLex202200002836JBJ; 19 June 2023, LawLex202300008287JBJ..

Cass. com., 26 June 1994, LawLex200200004510JBJ. 

Cass. com., 28 January 1992, LawLex200200004512JBJ.

CA Paris, 3 February 2020, LawLex202000000199JBJ.

CA Paris, 28 October 1993, LawLex200200004317JBJ. See also for a definition of stock deficit: Cass. soc., 10 March 1988, LawLex201000000758JBJ, which defines it as the difference found between the value of the initial inventory increased by that of the goods supplied and the value of goods in deposit at the time of the inventory, increased by that of the sold products.

The mere existence of operating losses does not constitute imprudent act attributable to the agent within the meaning of Article 2000 of the Civil Code: Cass. com., 28 January 1992, LawLex200200004511JBJ.

See CA Paris, 11 May 2022, LawLex202200002495JBJ (substantial and unjustified deductions from the company's accounts), excluding compensation for operating losses in the event of mismanagement. Cf. CA Paris 6 July 2022, LawLex202200003938JBJ, considering that the failure to return fuel-related revenues at the time of termination, through retention and unilateral offsetting with the end-of-contract bonus or the distribution of dividends in the event of profitable results, does not constitute mismanagement.

Cass. com., 21 November 2000, LawLex200200004496JBJ.

See CA Paris, 18 February 2004, LawLex200400001952JBJ: if there is no express waiver to Articles 1999 and 2000 by the manager of a gas station in full knowledge of the facts, the principal must repay his operating losses; 20 September 2007, LawLex200800001251JBJ: exclusion of the application of Articles 1999 and 2000 of the Civil Code to the managing agent, in a lease-management contract, must be sufficiently clear to allow him to assess the scope of that waiver; 19 November 2008, LawLex200900000195JBJ: the application of a clause relating to the express waiver to the application of Article 2000 of the Civil Code in a agency-management contract, will not be set aside by the court where its consideration is the commitment by the principal to pay the agent a fixed commission covering his remuneration and all his expenses and losses.

CA Paris, 14 January 2010, LawLex201000000341JBJ.

CA Paris, 29 May 2013, LawLex201300000889JBJ; 11 May 2022, LawLex202200002495JBJ.

CA Paris, 3 March 2010, LawLex201100000996JBJ.

Cass. com., 28 October 1999, LawLex200200004495JBJ.

French Distribution Law

557. Context.

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557. Context.

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