As defined in Article 1 of the Law of Agency Agreements (from now on LAA), these types of agreements are for which a natural person or legal entity is obligate to promote, or promote and conclude, commercial acts or operations. Unless otherwise agreed, the agent does not assume the risk and responsibility of such operations.
The Agency Agreement requires permanency and stability; it’s a term contract which may be fixed or indefinite.
- Independence: If it is ascertained that that the agent cannot organize his own work activities nor can the agent arrange to dedicate his time to specific activities based on his own standard of performance, it is understood that he is a dependent and hence subject to a contract
- To act as an agent, the conclusion of commercial actions and operations will be done in the name of the employer on whose behalf the agent is acting
- Unless otherwise agreed, he shall not be entitled to reimbursement of expenses incidental to this work
- Remuneration of the agent:may consist of paying a fixed amount or based on commission, or a combination of both.
- Must act honestly and in good faith, safeguarding the interests of the employer on whose behalf he acts as agent
- Must deal diligently with good business judgment in the promotion and, where appropriate, conclusion of acts or operations that may have been entrusted to him
- Must inform the employer of all available information necessary for the proper management of all acts or operations entrusted to the agent
- Must develop his activity in accordance with instructions mandated by the employer where they do not affect agent’s independence
- Must receive, on behalf of the employer, any claims presented by third parties in regards to defects or the defective quality or quantity of goods sold and services rendered as a result of these mandated operations, even if they have yet to be completed
- Must set up an accounting system to record the acts or transactions relating to each employer on whose behalf he acts.
What conditions must be met to be considered an agency agreement so as to avoid being classified as an employment relationship?
As indicated above, the distinctive note between the agency agreement with respect to an employment contract, is the independent nature of the agent.
The relationship which exists between the agent and the company on whose behalf the agent acts is a commercial relationship, not a employment relationship, so it does not apply under the Workers’ Statute. If it is ascertained that the agent does not work independently, it is regarded as an employment contract.
What also is relevant in determining whether a contract is an agency agreement is the concept of the trade representative (Article 2.1 f) as defined by the Workers’ Statute, which is a special work relationship, where the representative is one who is involved in commercial transactions on behalf of one or more employers, without assuming the risk and responsibility of these transactions.
While at first glance both concepts appear to be the same, we must address the unique characteristic which distinguishes the two: the independent nature of the agent.
In this regard, the jurisprudence of the STSJ in Madrid on 9 October 2007, states that the key element of the NON-LABOR MOVEMENTwill lie in how to develop the movement and more specifically how to develop autonomy and its implementation, understanding that the power to organize these professional activities, like time dedication, must conform according to our own criteria (art. 2 LAA).
Therefore, in order to determine whether there is an agency agreement, commercial in nature, or if there is a trade representative agreement, with an employment relationship protected by the Workers’ Statute, we address the degree of independence with which each agent acts with respect to the guidelines set out by the employer.
Any employer wishing to conclude an agency agreement with an agent, shall take into account the effect of such obligations entrusted to him of which the law applies to the present contract (art 10 LAA) and above all must respect the independence with which the agent will perform trade operations. If it is ascertained that the employer intercedes notably in the way in which the agent is operating, it is understood that there is a dependence and therefore is a labor contract rather than an agency agreement.
This article is not considered as legal advice