Agency agreement in Israel: what the statute gives, and what cannot be contracted out
Relations between a commercial agent and a supplier are governed in Israel by a dedicated statute from 2012, and that is the starting point many parties do not know. The law sets graduated notice by seniority and a right to compensation on termination, and prohibits contracting out except in favour of the agent. This page covers what the law gives and what still has to be drafted.
“The law may be varied only in the agent's favour. That is the starting point of any drafting.”
Adv. Erez Sapir
The statute, and who it applies to
The Agency Contract Law (Commercial Agent and Supplier), 5772-2012, governs relations between a commercial agent and a supplier. Section 1 defines a commercial agent as a person whose occupation is locating customers, or activity intended to bring about a contract between a customer and a supplier.
Section 2 defines an agency contract as a contract in which the supplier grants the commercial agent a continuing authority to locate new customers or to bring about further engagements.
Two words in that definition do all the work: continuing authority. A one off referral of a customer is not an agency contract. An ongoing relationship, in which the agent works continuously to find customers for the supplier, is.
So the first question in any dispute is not what the document is headed but what the relationship actually was. Parties who called themselves a marketer or a representative may find themselves inside the statute, and parties who wrote agency agreement on a single transaction may find themselves outside it.
Source: Agency Contract Law (Commercial Agent and Supplier), 5772-2012, Knesset statute book. Checked September 2026.
Notice by seniority
Section 4 sets the notice required to terminate an agency contract, and its length increases with the duration of the relationship:
in the first six months, two weeks; from the seventh month to the end of the first year, one month; in the second year, two months; and from the third year onwards the period grows progressively, up to six months.
The logic is plain: the more the agent has built, the more time they need to adjust. And the practical consequence for a supplier: abruptly ending a long relationship is not merely unfair, it creates exposure to a claim even where the signed agreement said otherwise.
Source: Agency Contract Law (Commercial Agent and Supplier), 5772-2012, Knesset statute book. Checked September 2026.
Compensation on termination
Section 5 gives the agent a right to compensation on termination, and not in every case. Three conditions are examined: that the agency contract was in force for at least one year; that the agent was an effective cause of new engagements or of a substantial expansion of existing ones; and that those engagements continue to bear fruit for the supplier after termination.
The calculation: the average monthly profit for each year in which the agency contract was in force, up to a ceiling of twelve months.
The idea behind the section is that the agent built an asset that stays with the supplier. The compensation is not a penalty for terminating but payment for that asset.
Why this matters to a supplier: compensation of up to twelve months of average profit is a material sum, and it belongs in the planning rather than in the termination.
Source: Agency Contract Law (Commercial Agent and Supplier), 5772-2012, Knesset statute book. Checked September 2026.
What cannot be contracted out
This is the section that makes all the previous ones matter. Section 6 provides that the provisions of the law may not be contracted out of except in favour of the commercial agent.
The practical meaning: a clause waiving the notice period, or waiving compensation in advance, or shortening the statutory periods, is not valid. A supplier relying on such wording is relying on a clause that will not stand.
From the other direction, it is entirely possible to improve on the statute in favour of the agent, for example with a longer notice period or higher compensation, and that is valid.
Hence the most important conclusion on this page: do not draft an agency agreement as an attempt to circumvent the statute. The leverage a supplier has in drafting lies elsewhere, and that is the next section.
Source: Agency Contract Law (Commercial Agent and Supplier), 5772-2012, Knesset statute book. Checked September 2026.
What still has to be drafted
The statute sets a floor, not an agreement. These are the components it does not regulate, and where the drafting room lies:
Territory and exclusivity. Whether the agent is exclusive in an area or a category, and whether the supplier may sell directly. This is the most common source of dispute.
Commission. Rate, calculation basis, when entitlement arises, and what happens when a customer reorders after the agent has left.
Targets. If sales targets are set, define what happens if they are missed and through what mechanism.
The line between agent and employee. Subjecting the agent to working hours, day to day direction and full exclusivity may support a claim of an employment relationship, with all that follows.
The customer list. Whose it is on termination. A clear clause here saves litigation.
Confidentiality and non competition. See non-disclosure agreement.
Agency, distribution and brokerage
Three structures that get mixed up, and the distinction determines whether the statute applies.
Agent. Acts on behalf of the supplier to find customers for it. Does not buy the goods. Paid by commission. This is the structure the statute covers.
Distributor. Buys from the supplier and resells in its own name and for its own account. Its profit is the margin. It is not a commercial agent, and the Agency Contract Law does not apply to it as such.
Broker. Connects parties for a particular transaction, without continuing authority.
Again, the test is substance, not the heading. An agreement headed distribution but conducted in practice as agency may be examined as agency.
Ending the relationship in practice
In most cases that reach us the termination has already happened, so it is worth knowing what each side should do.
For the agent. Gather the material establishing the three compensation conditions: how long the relationship lasted, which customers were brought in by the agent, and whether they continue to buy. An orderly letter setting that out is usually a good opening position for negotiation.
For the supplier. Give notice matched to seniority, and document the reason for termination. Termination for fundamental breach sits in a different category from termination for convenience, so contemporaneous documentation matters.
Where the dispute concerns accrued debts, see debt collection and creditor representation.
Legal support
We draft agency and distribution agreements for both sides and handle termination disputes. In drafting we start from which structure is right at all, agency or distribution, because that choice determines which mandatory rules apply. In a dispute we first build the factual basis for the three compensation conditions.
To reach us: 02-5953322 in Jerusalem, 03-3030430 in Tel Aviv, WhatsApp 050-4411343.
Frequently asked questions about agency agreements
Who counts as a commercial agent?
What notice is required to terminate?
When is an agent entitled to compensation on termination?
Can the agreement waive the compensation or the notice period?
What is the difference between an agent and a distributor?
If the statute applies anyway, what is most important to draft?
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