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The Israel Agency Contract Law

The Israel Agency Contract Law went into force on April 27, 2012. The law provides two significant rights for the commercial agent: prior notice before termination of the agency contract and compensation for termination of the contract for the agent's efforts to increase the principal's clientele. Attached is an unofficial translation of the law.

The Agency Contract Law (Commercial Agent and Principal), 2012

1. Definitions

According to this law:

“Goods” - Perceptible assets excluding real estate.

“Commercial agent” –Someone engaged in finding clients, or in activities (of which the purpose is to) for the purpose of entering into a contract between a client and a principal in connection with the purchase of goods that are marketed by the principal.

“Principal” – The manufacturer or seller of goods, who is the owner of their goodwill and trademark rights.

“Trademark rights” – either registered or unregistered

2. The essence of an agency contract

An agency contract is a contract for remuneration between a principal and commercial agent, according to which the principal empowers the commercial agent continuously to find new clients or additional contracts with new clients, for the purpose of purchasing goods that are marketed by the principal, whereas there are no employer-employee relations or partnership between the parties.

3. Obligation of loyalty

The parties to the agency contract are obliged to act loyally towards each other.

4. Termination of an agency contract for an unlimited period

(a) A party to an agency contract for an unlimited period may terminate the contract by prior notice to the other party within reasonable time and in writing, as long as the time of notice shall not be less than:

(1) During the first six months from the beginning of the contract - two weeks;

(2) During the period starting from the seventh month since the beginning of the contract until the end of the first year since this date - a month;

(3) During the second year since the beginning of the contract – two months;

(4) During the third year since the beginning of the contract – three months;

(5) During the fourth year since the beginning of the contract - four months;

(6) During the fifth year since the beginning of the contract - five months;

(7) During the sixth month since the beginning of the contact and thereafter - six months.

(b) In case the parties to the commercial agreement decide on longer periods of prior notice than those set out in article 4(a), the period of prior notice for termination of contract by the principal shall not be shorter than the period of prior notice for termination by the agent.

(c) (1) In case one of the parties terminates the agency contract by prior notice, the principal may demand that the commercial agent to stop immediately all activities for him as an agent; In such a case, the principal shall pay him compensation as set out in article (2) for the period during which the agent stopped acting on his behalf (in this article – prior notice pay)

(2) The prior notice pay shall equal the multiplication of the period of notice with the average profits of the commercial agent during the six months prior to the termination of the agency contract or the second half of the period of contract, whichever is the shorter period; A Court of Law may rule, for special reasons, different prior notice pay if it finds that this is just and right considering the circumstances, taking into account the changes in the market conditions or in the field in which the commercial agent was active.

(d) An agency contract for a fixed period which continues to be performed by both parties after that period has expired, without stating time of termination, will be considered regarding this article as an agency contract for an indefinite period, and the prior notice period shall be calculated according to the period of the contract since its beginning.

5. Compensation for termination of agency contract

(a) When an agency contract is terminated by either party, the commercial agent shall be entitled to compensation from the principal for the transactions of the principal with new clients or for the significant increase of the scope of the principal’s business with existing clients, if and to the extent that:

(1) The agency contract was valid for at least one year;

(2) The commercial agent was the efficient factor in transactions or increasing the scope of business;

(3) The principal derives benefits from the transactions or increases in the scope of business also after the conclusion of the period of the agency contract.

(b) The amount of compensation according to article (a) shall equal the average monthly profit for each year in which the agency contract endured, but no more than twelve months. According to this article – “the average monthly profit” – The average monthly surplus profit that was attributed to the commercial agent during three years prior to the termination of the agency contract, or during the period the contract was valid, the shorter of the two periods.

“surplus profit” – Profit due to the transactions of the principal with new clients or due to significant increase in the scope of business of the principal with existing clients, in relation to which the agent served as the efficient factor.

(c) Notwithstanding article (a), the principal shall not be obliged to compensate the commercial agent if the contract was duly terminated by him due to infringement of the contract by the commercial agent.

(d) The court may reduce the amount of compensation set out in this article or instruct that no compensation shall be granted, if this appears just and right under the circumstances.

6. Derogation – in favor of the commercial agent The parties may not derogate from this law to the detriment of the commercial agent.

7. Saving of laws

This law does may not derogate from any provisions of the law.

8. Execution

The Minister of Justice is in charge of this law.

9. Beginning

This law will be put into effect sixty days from its publication.

The Agency Contract law was approved by the Knesset on Monday February 20, 2012. The Law was initiated by the Tel Aviv and Central Israel Chamber of Commerce and proposed by MK Alex Miller as a private bill. The law shall enter into force on 27 April 2012.

The text above is an unofficial translation by the legal department of the Tel Aviv Chamber of Commerce. The Hebrew text as published by The State of Israel is binding.

Adv. Shosh Rabinowitz, Legal Advisor. For further questions and inquiries you are welcome to contact us at: shoshr@chamber.org.il

View other interpretations of this new law. Click here.