Unilateral changes in agency contracts are common, reflecting the evolving needs of businesses to adapt to changing market conditions, territories, products, or commissions. While these modifications are allowed in certain circumstances, they must adhere to principles of fairness and proportionality to avoid disputes and protect the agent’s rights.

Recent Italian case law has clarified the procedure for implementing such changes, emphasizing the importance of objective evaluations and a balanced approach.

Determining the financial impact of changes

The financial impact of unilateral changes can be determined by comparing two key figures:

  1. The total commissions earned by the agent in the fiscal year before the change.
  2. The notional total commissions that would have been earned had the new terms applied during that period.

The ratio between these figures, expressed as a percentage, provides a clear measure of the change’s impact. This retrospective analysis has been endorsed by courts, as it offers an objective benchmark to evaluate the fairness of the modifications.

What the courts Say

Italian courts have provided clear guidelines for businesses and agents when dealing with unilateral changes. Recent rulings highlight several key principles:

  1. Use past results as a reference: New contractual terms should be evaluated based on the agent’s results from the previous fiscal year. This ensures changes are measured against actual performance, avoiding speculative calculations.
  2. Respect for proportionality: Changes must not create an excessive imbalance in the contractual relationship. Modifications deemed “significant” or “substantial” require careful justification and may give the agent grounds to reject them or seek compensation.
  3. Account for both gains and losses: While courts expect businesses to evaluate potential reductions in earnings, they also emphasize the need to consider any advantages the changes might bring (e.g., expanded territories or improved terms).

Legal limitations to unilateral modifications

Unilateral changes, while permitted, are subject to legal restrictions. The Italian Civil Code and case law stress that modifications must comply with principles of good faith and fairness. Businesses must not misuse their position to impose changes that disrupt the balance of the contractual relationship.

In cases where the changes are of “sensitive significance,” agents retain the right to refuse them or negotiate compensatory measures. For example, if changes significantly reduce commissions or alter the nature of the work, the agent can reject the proposal while maintaining their right to claim damages.

Practical implications for businesses

For companies relying on agency contracts, the implementation of unilateral changes requires careful management. There are some practical steps which businesses can take to ensure compliance:

  • Assess any impact thoroughly: Before introducing changes, businesses should calculate the financial impact of those changes using the agent’s past results as a benchmark.
  • Document justifications: Companies should clearly outline the reasons for the changes, linking them to legitimate business needs and demonstrating their fairness.
  • Communicate transparently: Open and early communication with agents can help prevent misunderstandings and foster collaboration in adapting to new terms.

Key takeaways for agents

Agents must understand their rights to navigate unilateral changes effectively. They can:

  • Request clear calculations showing the impact of the modifications.
  • Reject changes that disproportionately affect their earnings or scope of work.
  • Negotiate compensatory measures if the changes result in significant disadvantages.

Finding the right balance

Unilateral changes to agency contracts are a practical necessity in many industries, but they must be managed with care to maintain a fair balance between the parties involved. The courts have provided clear guidelines that stress the importance of objective evaluations, respect for contractual fairness, and open communication. By following these principles, businesses and agents can avoid unnecessary conflicts and create a framework for sustainable collaboration.

For more information on this or other employment law matters in Italy, contact me at attilio.pavone@nortonrosefulbright.com or get in touch with your trusted NRF contact for employment law matters.