Dismissal of a trade representative and the special employment relationship
Does the minimum wage apply to the special employment relationship of persons involved in commercial transactions or trade representative? If the relationship is terminated, does it apply to the calculation of severance pay?
What is a trade representative?
Special employment relationship.
Trade representatives play a key role in the relationship between companies and their customers. These professionals are in charge of promoting and selling a company’s products or services through a special employment relationship known as a trade representation contract.
A trade representative is an entrepreneur or natural person who, in an independent and remunerated manner, is in charge of promoting or carrying out trade contracts on behalf of another entrepreneur.
The trade representative acts as an intermediary between the company and the clients, establishing contacts, making trade visits, presenting offers and negotiating conditions. Their main objective is to increase trades and expand the company’s presence in the market.
Trades representatives are included in the General Social Security System and have a special employment relationship.
Difference with the sale representative
The trade representative differs from the sale agent in that the sale agent is self-employed, assumes the risk of the operation and provides the service autonomously, while the trade representative does so without assuming the risk and in a dependent manner, although in a flexible way.
Competition
The customers recruited belong to the company, but in the event of termination of the employment relationship, severance pay must be added to the compensation for dismissal, provided that new customers have been brought in (or trades have increased with existing ones) and, once the contract has been terminated, the employee is obliged not to compete with the employer or not to provide services for another competing employer.
If the agent claims that the relationship between the two parties was an employment relationship (alleging that you were controlling his activity) and is able to prove it, the courts will rule in your favour.
Advantages of hiring a trade representative
Hiring a trade representative has several advantages, among others:
- Maintaining a portfolio of clients, increasing turnover and benefiting from the representative’s market experience.
- Being able to provide a personalised service to customers to improve relationships, build loyalty and increase trades in the long term.
You will be responsible for negotiating and closing contracts, allowing the entrepreneur to focus on other areas of the business.
Termination of the contract of a trade representative
Compensation for customers
More customers.
In the event of termination without cause of the special employment relationship of sales representatives [RD 1483/1985, art. 11] , they shall be entitled to a special indemnity different from and additional to that which may correspond to them for unfair dismissal – in consideration of the increase in clientele that the company has obtained thanks to them – when certain circumstances concur:
- That the termination is not due to non-fulfilment of their obligations.
- That, once the relationship has ended, the worker is obliged not to compete with the employer or not to provide services for a competitor.
- That an increase in the number of clients is accredited (the annex to the contract in which the clients provided are listed must be taken into account).
- The amount of this compensation must be agreed between the parties (in case of disagreement, a judge must be consulted). The amount may not exceed the total amount of commissions corresponding to one year, calculated with the average of the commissions received during the last three years (or the duration of the employment relationship, if it is shorter than this period).
In order to calculate the client indemnity, the client lists established at the beginning and end of the relationship are compared, taking into account the increase in the volume of operations [RD 1438/1985, art. 5].
Compensation for unfair dismissal and for clientele cannot be compensated, and the company must assume the payment of both amounts.
If there is no agreement between the parties.
In the absence of agreement between the parties, the judge will be the one to set the compensation for clientele, which may not exceed the total amount of the commissions corresponding to one year. This amount is calculated on the basis of the average amount of the total commissions received during the last three years (or the duration of the employment relationship, if less than this period).
Compensation for dismissal of a trade representative
Unfair
As regards possible compensation for unfair dismissal, these are set in accordance with the provisions of the Workers’ Statute (ET). Thus, the monthly salary is calculated on the basis of the average income obtained during the two years prior to the dismissal or termination of the contract (or a shorter period, if applicable) [RD 1438/1985, art. 10.1].
The basic labour rights and duties recognised in the Workers’ Statute [RD 1438/1985, art. 12] are applicable within the scope of this special employment relationship.
Remember that the compensation for unfair dismissal is 33 days’ salary per year worked, with a limit of 24 monthly payments.
Professional minimum wage
Does it apply?
A real case
The courts [SC 10-10-2023] have recently analysed whether the minimum interprofessional wage (SMI) should be applied in the special employment relationship of persons involved in commercial operations or trade representatives and, specifically, in the case of the dismissal of a worker with the category of trade representative, with a full working day and whose average salary (received during the months he has provided services) is equivalent to 32.99 euros per day (average between the fixed salary and the commissions paid).
The remuneration agreed by the parties is made up of commission on sales, fixed salary and compensation for expenses.
The SMI for the year 2023 is 15,120 euros per year (equivalent to 36 euros per day).
Rationale
Trade representatives have their own specific regulation [RD 1438/1985]. As for what is not regulated, the basic labour rights and duties recognised in the ET are applicable; among them, the right of workers to the timely receipt of the agreed or “legally established” remuneration [ET, arts. 4 and 5] .
Compensation
The specific regulations do establish that, in relation to possible compensation for unfair dismissal or similar cases, these will be set in accordance with the provisions of the ET. Thus, the monthly salary is calculated on the basis of the average income obtained in the two years prior to dismissal or termination of the contract (or a shorter period, if applicable) [RD 1438/1985, art. 10.3]. Therefore, it is logical that the amount of the SMI should be respected for the calculation of the compensation for unfair dismissal, and this has been confirmed by the courts.
Calculation of compensation of a trade representative
Calculation
Therefore, if the salary of a sales representative does not reach the minimum interprofessional wage, it is the SMI that should be taken into account as the regulatory salary for the calculation of the severance pay (not for the customer severance pay).
In conclusion
Irrespective of the salary received by the person providing services in a special employment relationship, the calculation of severance pay in the event of dismissal must take into account a standard wage equivalent to the minimum wage (on an annual basis) that must be applied according to the regulations published each year.
Common employment relationship
Consequences
Commercial
If a judge were to declare that the employment relationship between the two parties was common (e.g. if you were a simple salesman), you would be entitled to have the customer indemnity returned to you, but you cannot directly offset the amounts of the indemnities, as they are of a different nature and compensate different damages. In such cases:
- Apply to the court for severance pay and request compensation.
- If the court rejects the compensation, you will have to claim the refund of the customer severance pay in court, claiming that you should not have paid it.
The minimum wage is to be taken into account as a standard wage when calculating the severance pay of a trade representative, if his or her salary does not reach the minimum wage.
