Meaning
Monetary payment required by law to compensate a commercial intermediary for the value of the customer base they have developed during a contract. Payment of a statutory goodwill indemnity occurs when the principal retains the benefit of the sales network after the intermediary has been terminated. This protection is common in many civil law jurisdictions and aims to prevent the unjust enrichment of the supplier at the expense of the partner.
Qualification Criterion
Intermediaries must demonstrate that they have increased the volume of business or brought in new clients to qualify for the funds. Under the rules for statutory goodwill indemnity, the increase in business must provide future value to the principal. If the customers were already known to the supplier or if the increase was purely the result of brand strength, the claim might be denied.
Structural Calculation
Calculations for the amount vary by country but often focus on the average annual earnings of the intermediary. A typical statutory goodwill indemnity is capped at one year of the average commission or profit margin calculated over the preceding five years. Courts may reduce this amount if the termination was caused by a breach of contract or if the agent will not suffer a loss of income.
The objective is to reach a sum that represents a fair buy-out of the goodwill.
Global Application
Variations of this right exist in most European Union member states due to the harmonization of agency laws. This ensures that a statutory goodwill indemnity provides a minimum level of protection for agents regardless of which national law governs the agreement.
