Foreign companies from different sectors choose to enter Brazilian market by hiring a sales representative in Brazil, as happens in many parts of the world. However, many times, these companies are unaware of some legal aspects that govern sales representation in Brazil, especially in the event of contract termination and its consequences.
We will deal with the cases of termination – without cause and on the initiative of the represented company – of a sales representation contract of indefinite duration.
According to Law 4.886, from December 9, 1965, that governs this matter, if the represented company terminates the contract without cause, the representative must receive immediately all outstanding commissions, even if there are unpaid invoices at the date of contract termination.
Furthermore, in these cases, the represented companies must also compensate the representative. The amount of the compensation will be, at least, 1/12 of the total amount of commissions that the representative received during the entire duration of the contract.
A final note is that any party can terminate the representation contract of indefinite duration, with more than six months in force, as long as it is informed to the other party at least 30 days before.
It is important to note that changes in the rules above are currently being discussed, as a bill in the Brazilian Congress, with the objective of providing more legal security and predictability in the commercial relations between the companies and its sales representatives. Among the possible alterations discussed, it is worth mentioning the possibility of limiting the base-period for calculating the 1/12 amount, and the possibility of an annual payment of an additional amount corresponding to the 1/12 as an anticipation of future compensation. However, despite these discussions, no effective changes have been made to the legislation in effect.
RUCR Law provides services for foreign groups that intend to promote their products and services in the Brazilian market using contracts with local sales representatives, always seeking to advise them about the risks and peculiarities of Brazilian law.
Subject analyzed by partner Marcelo Ulhoa, together with trainee Pedro Sousa.
For further clarification, please contact our team.
