When a long-standing commercial relationship ends, the principal’s business may continue to benefit from the customer base built up over years by the agent. Swiss law addresses this through the goodwill indemnity (also called compensation for clientele) in Article 418u of the Swiss Code of Obligations. The concept seems straightforward: if an agent has materially expanded the principal’s customer base and the principal continues to profit after termination, an indemnity may be justified. In practice, however, Swiss courts approach these claims with caution, and the Swiss framework differs in several important respects from the EU approach.
The Article 418u test: structured, but fact-intensive
At the heart of Article 418u lies a structured (and evidence-heavy) test:
- Substantial expansion of the customer base: In practice, Swiss courts use the turnover achieved by the agent as the decisive element, not the number of customers. For long-lasting agency relationships, the compound annual growth rate (CAGR) is relevant.
- Continuing significant benefits post-termination: The principal must still derive significant benefits from those customers after the agency relationship ends. This presupposes a certain customer loyalty so that follow-on business can be expected.
- Causality: The expansion must be attributable to the agent’s efforts. An increase in turnover due to external factors, e.g., inflation or an overall growing market, is not relevant.
- Equity as a decisive filter: Even if the above elements are met, Swiss law adds a requirement that frequently drives the outcome: the indemnity must not be inequitable in the circumstances. Swiss case law treats equity not merely as an adjustment factor for the amount, but as a condition that can eliminate the claim entirely.
Equity: often the “decider”
Swiss courts set a relatively low threshold for finding an indemnity inequitable and show restraint in granting goodwill indemnities at all.
By way of example, a long contractual duration can be invoked as an equity argument against an indemnity, on the basis that the agent had ample time to amortise its efforts through ongoing remuneration during the relationship.
In principle, a goodwill indemnity can be qualified as inequitable if the agent has been sufficiently remunerated during the agency relationship. Therefore, an entitlement requires a certain imbalance during the agency relationship.
Cap and calculation base: “net” means net (and must be proven)
A further Swiss particularity is how the maximum and the calculation base are defined. Article 418u caps the indemnity at the average net annual earning achieved by the agent during the last five years.
“Net” means the agent’s income from the agency relationship after deduction of the costs incurred to perform the agency activity, such as travel and representation expenses, office overhead, and personnel costs. Swiss courts have broad discretion to set an “appropriate” indemnity. However, that discretion does not release the agent from the obligation to precisely prove the net annual earning, which may be very challenging especially if an agent works for several principals.
Exclusion of the indemnity: Swiss law vs EU law
The potential lapse of an entitlement is another area where Swiss law diverges from European practice.
Under Swiss law, the indemnity is excluded if the agency relationship is terminated for a reason attributable to the agent. Under EU law, by contrast, the indemnity can only be denied where the principal has terminated the agency agreement because of default attributable to the agent which would justify immediate termination of the agency agreement.
Extension to distribution: possible, but only on strict conditions
A recurring question in Switzerland (and in other European states) is whether goodwill indemnity principles – i.e., Article 418u in Switzerland – extend beyond classic agency agreements to distribution relationships with independent distributors.
Switzerland generally accepts an analogous application to certain distribution relationships, but only if strict conditions are met. Importantly, the distributor must benefit from contractually guaranteed exclusivity; mere factual exclusivity is not sufficient. In addition, Swiss case law requires that the distributor is integrated into the supplier’s distribution organisation in a manner that places the distributor in an agent-like position.
Summary: what this means in practice
For agents, success depends on building an evidence package early: e.g., customer acquisition history, customer turnover development during the entire agency relationship, proof that customers continue to generate business for the principal after termination, and proof of the net annual earning.
For principals, the defence against goodwill indemnity claims often focuses on equity and on the net-income calculation: cost allocation, multi-brand structures, and the overall economic balance of the relationship can become central.
Both sides – agents in particular – should also be realistic: successfully enforcing a goodwill indemnity claim is an uphill battle, underlined by the fact that there is basically no published case law showing the successful assertion of such claims.
Article published by MLL
