Agency Agreements in Israel: Rights of Commercial Agents and Suppliers
Agency agreements are a cornerstone of commercial practice in Israel. For many years, however, the legal relationship between suppliers and their commercial agents lacked a clear statutory framework. This changed with the enactment of the Commercial Agents Law (Agency and Distribution Agreements), 2012, which established comprehensive protections and obligations for both parties.
By Igal Mor, Adv. & Notary
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Background: Why the Law Was Needed
In the supplier-agent relationship, the commercial agent acts as an intermediary between the supplier and its customers. The agent’s primary role is to market the supplier’s products as broadly as possible in exchange for commissions — a task that requires substantial investment of time, effort, business relationships, and personal reputation. A successful agent often delivers significant value to a supplier, including an expanded customer base and access to new market segments.
The longstanding problem was that suppliers would frequently sever ties with an agent precisely when the agent began to succeed — capitalizing on the relationships and goodwill the agent had built. Because the commercial agent was classified as an independent contractor rather than an employee, the agent had no legal entitlement to advance notice, financial compensation, or any basic duty of fairness from the supplier. The Commercial Agents Law was enacted to correct this imbalance by granting commercial agents statutory rights and protections. Importantly, the law provides that its provisions may not be waived except to the benefit of the commercial agent.
“Commercial agent” — a person who locates customers or engages in activities with the purpose of bringing about a contract between a supplier and a client for the purchase of goods marketed by the supplier. “Supplier” — a manufacturer of goods who markets those goods, or a holder of the right to use the trademarks associated with those goods.
— Commercial Agents Law (Agency and Distribution Agreements), 2012
Defining the Agency Relationship
The law defines a commercial agent as a person who locates customers or engages in activities that lead to contracts between suppliers and clients. Under an agency agreement, the supplier authorizes the agent to find new customers or negotiate with existing clients for the purchase of the supplier’s products. It is important to note that an agency agreement does not create an employer-employee or partnership relationship between the parties. However, the law does require both parties to act in good faith toward each other. Historically, while the agent owed a duty of loyalty to the supplier, the supplier had no reciprocal obligation — an imbalance that the current law was enacted to correct by imposing mutual duties of fairness and good faith.
Advance Notice and Compensation Upon Termination
To protect agents who invest significant effort in marketing a supplier’s products, the law grants two important rights upon termination of the agency relationship:
- Right to compensation: When the agency contract is terminated, the agent is entitled to compensation. This right recognizes the goodwill and customer base that the agent has built on behalf of the supplier throughout the course of the relationship.
- Right to advance notice: Before terminating the contract, the supplier must provide the agent with reasonable advance notice. The required notice period depends on factors such as the length of the business relationship and the agent’s level of investment in the agency.
Under Section 5 of the law, when an agency contract is terminated by either party, the commercial agent is entitled to compensation from the supplier if the supplier continues to benefit from engagements with new customers or from a significant expansion of business with existing customers — provided the following conditions are met: (1) the agency contract was in effect for at least one year; (2) the commercial agent was the primary factor in securing those new contracts or expanding existing business; and (3) the engagements or business expansion continue to generate revenue for the supplier after the agency contract ends.
The compensation amount is calculated based on the agent’s average monthly excess profit during the three years preceding termination (or the full contract period, if shorter), up to a maximum of 12 months’ worth. “Excess profit” refers to the additional income attributable to the agent’s efforts in securing new customers or expanding existing business relationships.
Whether you are a supplier or a commercial agent, Mor & Co. Law Firm’s Commercial Law Department provides expert legal counsel on all matters related to agency agreements. Our team has extensive experience representing agents, suppliers, entrepreneurs, and businesses from Israel and abroad across a wide range of commercial law matters. Contact us by phone at 02-595-3322, via WhatsApp at 050-441-1343, or through the online contact form below.