The Swedish Supreme Court has recently tried which period of notice should be considered reasonable upon the termination of a distribution agreement with a duration of 22 years, and whether the distributor is entitled to compensation for goodwill in terms of a severance pay.
The case concerned a claim for compensation from a distributor against a supplier, after the supplier terminated the distribution agreement. The claim was based on the fact that the supplier had given a six-month notice period which, according to the distributor, was too short. Furthermore, the distributor claimed severance pay for the goodwill that he had contributed to.
Regarding the question of a reasonable notice period, the Court found that in the case of long-term contractual relationships in the neighboring law-regulated areas, there are provisions which imply a six-month notice period. A rule of thumb should consequently be that the distributor is entitled to a six-month notice period when terminating a long-term distribution agreement which lacks an agreed period of notice. Circumstances in the individual case can, however, lead to the conclusion that another notice period should be considered fair. This may be the case if relevant trade customs indicate differently or if the distributor only has a limited need for protection. In the present case the Court held that the period of notice was to be considered fair.
Regarding the question of severance pay upon the termination of a distribution agreement, the Court held that the distributor has no expressed legal right thereto. However, the Court found that distributors may receive severance pay in analogy with the Commercial Agency Act or similar legislation. Such an analogous application should, the Court continued, only be considered when the distributor’s need for protection comes across as particularly strong. An example of such a situation is when the distributor holds a weak position in relation to the supplier. In the present case the Court concluded that there was no need for such protection, and severance pay was therefore not to be dispersed.
The verdict thus provides us with a notion as to which period of notice that should be considered fair when terminating a long-term distribution agreement, and clarifies that a six-month notice period, as a benchmark, shall be considered fair. Furthermore, the Court concludes that a potential right to severance pay only arises when the distributor’s need for protection in relation to the supplier comes across as particularly strong.