The role of the general agent
In the commercial distribution landscape, the role of the general agent is becoming increasingly important, particularly in the insurance and financial sectors. Unlike a simple agent, the general agent is often entrusted with broader responsibilities: he or she coordinates a network of agents and manages complex organizational activities, which must, however, necessarily be accompanied by a primary focus on promoting the conclusion of contracts. In other words, the general agent must be an agent first and foremost, performing organizational and coordination activities only on an ancillary basis. These particularities raise doubts and disputes regarding the taxable base to be considered for the actual quantification of severance pay upon termination of the assignment, assuming the relevant requirements are met.
The regulation of compensation pursuant to art. 1751 of the Italian Civil Code.
Severance pay, governed by Article 1751 of the Italian Civil Code, represents a fundamental protection for the agent. This provision provides that, under certain conditions, the agent is entitled to compensation upon termination of the contract. Specifically, compensation is due when the agent has procured new clients for the principal or has significantly expanded business with existing clients, and the principal continues to benefit from these business relationships even after the termination of the relationship. The award of compensation must also be equitable, taking into account all the circumstances of the specific case.
The peculiarities of the relationship with the general agent
In the case of a general agent, the issue becomes more complicated. It is not always a given that all compensation received by the general agent should be considered as the taxable base for the quantification of the severance pay pursuant to art. 1751 of the Italian Civil Code, which, as is well known, establishes a maximum limit consisting of one year’s commission, calculated based on the average of those received in the last five years of the contract term or throughout the entire relationship, if the term is less than five years. The general agent typically receives compensation consisting of a commission calculated on the business initiated and concluded by the principal, in addition to a so-called “over-commission” calculated on the volumes achieved by the coordinated agents. This latter portion of the compensation, which in many cases consists of significant amounts, has been the subject of assessment by case law to determine whether or not it should be considered for the actual quantification of the severance pay.
The criteria of jurisprudence
Case law has addressed this issue in several lower court and Supreme Court rulings (relating to financial advisors), excluding from the taxable base on which to calculate the severance pay the compensation received by the general agent as over-commissions on the volumes achieved by the coordinated agents, also in order to avoid the principal having to pay the indemnity twice on the same turnover volumes achieved.
Concluding remarks
Ultimately, whenever it is deemed appropriate to include a general agent in one’s distribution network, it must first be kept in mind that this type of agent must comply with the requirements of the agency contract, and therefore the agent must primarily engage in promotion of contract conclusions, as required by Article 1742 of the Italian Civil Code. Coordination and organization of other agents, which may also include the selection of potential agents, should be considered an ancillary activity. Finally, in terms of quantifying severance pay pursuant to Article 1751 of the Italian Civil Code, it is important to consider the case law that excludes compensation received by the agent for coordination, selection, and organization activities from the taxable base, resulting in a reduction in the amounts payable to the agent, assuming the requirements of Article 1751 of the Italian Civil Code are met.
