Terminating a relationship with a sales representative –

Decision-making framework: who are you actually terminating

Before choosing a procedure, it is necessary to determine the type of relationship, as everything else depends on it. In practice, three models are often confused, and each has different consequences.

The first is commercial agency. The agent, as an independent entrepreneur, carries out long-term activities aimed at concluding transactions for the principal and receives a commission. The transactions are concluded by the principal; the agent does not take them on themselves. It is this model that has a statutory regulation under Czech legislation that cannot be circumvented to the agent's detriment.

The second is distribution. A distributor buys goods on their own account and resells them with their own margin. They bear the risk of sales and inventory, and the statutory rules on special remuneration do not apply directly to them. The difference is not the name of the contract, but who is the party to the transaction with the customer and who bears the risk of unsold goods. We discuss the termination of distribution in the article Terminating a contract with a distributor.

The third is the brokerage of individual transactions without a long-term commitment. In this case, special remuneration is not an issue, as the element of long-term activity and building a customer base is missing.

The second axis of decision-making is the method of termination. The expiry of the agreed term, termination by notice, and termination for breach of duty have different consequences for the entitlement to special remuneration. But beware of the threshold: the entitlement is excluded only if the principal terminated the relationship for a breach of the agent's duties that would have entitled the principal to withdraw from the contract. A one-off late report or unfulfilled KPIs are not, in themselves, sufficient.

Step-by-step procedure

Termination has a logical sequence in which you first calculate and only then send the document. The first step is to classify the relationship according to its actual content, not the title of the contract. Classification also includes checking whether the contract is in writing, which is required by law for commercial agency agreements.

The second step is a data inventory. You need a list of customers the agent brought in, a list of those with whom they significantly developed business, and an overview of commissions from these specific transactions over the last twelve months. Only the principal has this data, and in the event of a dispute, they will have to present it. If they fail to do so, the court may interpret this lack of explanation to their detriment—so it's not a tactical advantage, but a risk.

The third step is to calculate the probable amount of special remuneration before sending the notice of termination. Without this figure, you do not know whether it is better to negotiate a settlement or go to court, and you have nothing to create a provision for.

The fourth step is to choose the method of termination and calculate the notice period based on the duration of the relationship. Unless otherwise agreed, the notice period ends on the last day of the calendar month, so the actual end date is often later than companies plan.

The fifth step is the decision on a non-compete clause. A post-termination clause protects the customer base but increases the amount you will have to pay. For an agent moving to another industry, it is unnecessary; for an agent who joins a competitor, it is worthwhile. We cover non-compete clauses in business law in the article Non-compete clause in business relationships.

The sixth step is the handover of customers and data. This includes access to CRM, contacts, pending inquiries, and the settlement of samples and materials. At the same time, this is the moment to address the legal basis on which the agent processes the personal data of contact persons and what they will do with it after termination.

The seventh step is to settle everything in a single document. A termination agreement should include the final commission, cancellations, special remuneration or an express statement that the parties have agreed on a certain amount, and a mutual waiver of further claims. A unilateral payment without an agreement does not close the claim.

However, timing is key: according to the Court of Justice ruling of April 2026 in case C-204/25, a terminated commercial agency agreement does not end upon delivery of the notice, but only upon the expiry of the notice period, and a departure from the mandatory protection of the agent is only possible from that moment. An agreement signed during the notice period may therefore not hold up.

What is standard in the market and what is a warning sign

In well-established relationships, it is standard for the contract at the outset to define the territory, the circle of customers, and the state of the customer base when the agent joins. Without this baseline, it is impossible to prove five years later who brought in which customers. It is also standard to have regular commission statements and written confirmation of business development with existing customers.

It is also standard for the agent's remuneration to be divided into a commission on concluded deals and a part tied to meeting targets, and for the contract to describe the regime for commission cancellations on cancelled deals. We deal with damages in contractual relationships in the article Damages and contractual relationships.

There are three warning signs. The first is a contract that states the agent is not entitled to special remuneration upon termination—such a provision is to the agent's detriment and is disregarded, while the company relies on it until the last moment. The second is a termination based on a breach that is not documented, or that does not reach the intensity entitling withdrawal from the contract; in both cases, the right to remuneration remains unaffected.

The third sign is a lack of data. If the company has no overview of which deals the agent brought in, it has nothing to correct the agent's calculation with, and a court may interpret this lack of explanation to the company's detriment.

Where the legal line is drawn

The regulation of commercial agency is based on the EU Directive on self-employed commercial agents and is mandatory in the part concerning termination. This is why it cannot be contracted out of. Under Section 2483 of the Czech Civil Code, a commercial agent, as an independent entrepreneur, undertakes to carry out long-term activities for the principal aimed at concluding a certain type of transaction, and the principal undertakes to pay a commission; the contract requires written form.

Under Section 2510 of the Civil Code, for an agency of an indefinite duration, the notice period is one month in the first year, two months in the second, and three months in the third and subsequent years; any shorter agreement is disregarded, and unless otherwise agreed, the notice period ends on the last day of the calendar month. Furthermore, in the case of an exclusive agency, Section 2513 gives both parties the right to terminate the relationship without a notice period if the other party breaches the exclusivity.

The core is Section 2514 of the Civil Code. Special remuneration arises if the agent has acquired new customers or significantly developed business with existing ones, the principal continues to derive substantial benefits from these transactions, and the payment of remuneration is equitable having regard to all the circumstances; these circumstances include whether a non-compete clause was agreed.

Under Section 2519(2), any agreements deviating from Sections 2514 to 2517 to the agent's detriment are disregarded—thus, remuneration cannot be excluded in the contract. The right expires if not asserted within one year of the agency's termination (Section 2516), and it does not arise in cases under Section 2517, particularly if the principal terminated the relationship for a breach of the agent's duties that would have entitled the principal to withdraw. The one-year period is exhausted by asserting the claim with the principal; it is not necessary to file a lawsuit within this period, because under Section 628, the limitation period begins to run only from the date of such assertion and, according to Section 629, lasts for three years.

The amount is limited by Section 2515 of the Civil Code: it may not exceed an annual remuneration calculated from the annual average of remuneration over the last five years, and if the agency lasted less than five years, from the average for the entire duration.

How the remuneration is calculated was described by the Czech Supreme Court in its judgment 23 Cdo 2374/2021 concerning the substantively similar Section 669 of the Commercial Code. The procedure has three phases: first, the value of the principal's future benefits from new business is estimated (based on gross commission for the last twelve months, multiplied by the expected duration of the benefits, reduced by customer migration and discounted), then the amount is adjusted for equity, including upwards, and finally, it is compared with the cap under Section 2515. This is not a statutory formula, but a prognosis; the court refers to the European Commission's methodology as a guideline, not a binding instruction.

However, one step in this procedure has since been changed by the Grand Chamber of the Supreme Court in its judgment 31 Cdo 1774/2023, and it is a change in favour of agents. Lost commissions are not commissions from already completed transactions to which the agent is entitled under the contract, but commissions they would have received if the agency had hypothetically continued—from transactions made after termination with customers they brought in or with whom they significantly developed business. Commissions from already concluded deals are only counted as lost if the agent is deprived of them due to a special contractual arrangement. The argument "we paid him everything, so the remuneration is not equitable" will therefore not stand on its own.

The final boundary is the non-compete clause. Under Section 2518 of the Civil Code, a clause agreed for a period longer than two years after the termination of the agency is invalid, and if it restricts the agent more than is required for the necessary protection of the principal, a court may limit it.

Final summary

Terminating a commercial agency agreement follows a simple rule: calculate before you send the notice. First, verify the type of relationship, then prepare data on which customers the agent brought in, calculate the probable special remuneration, decide on a non-compete clause, and only then choose the method of termination. The settlement belongs in a single agreement, not in several unilateral payments.

The legal boundaries in this relationship are set in favour of the agent and cannot be overridden by contract. Special remuneration cannot be excluded, the notice period cannot be shortened, and a clause exceeding two years is invalid; conversely, the cap at the annual average remuneration and the one-year period for assertion play in the principal's favour. The ARROWS law firm negotiates and terminates these relationships as part of its Contracts and Negotiations service and is insured for professional liability up to a limit of CZK 350,000,000. Write to us at consultation@arws.cz.