Your Israeli agent has introduced customers, handled negotiations and become the local face of your products. Now you want to appoint someone else, take key accounts in-house or end an underperforming arrangement. A termination letter can turn that commercial decision into a dispute over notice, commissions and the customer business the agent helped build.
The agreement needs to work at both ends: when the relationship starts and when the parties separate. Our firm advises foreign suppliers on Israeli agency arrangements, negotiates the commercial terms and handles disputes over performance, payment and termination.
1. Decide whether this is really an agency
The Commercial Agency Contract (Commercial Agent and Supplier) Law, 2012 concerns a paid, continuing arrangement to find new customers or obtain further business from existing customers for goods marketed by a supplier. Its definition of goods covers tangible property other than land, and the statutory arrangement excludes employment and partnership relationships.
A distributor buying and reselling on its own account is different from an agent bringing about contracts between customers and the supplier. The title on the agreement does not settle which arrangement the parties have created. Examine who contracts with the customer, who invoices, who carries stock and credit risk, and what the local representative actually does. Do not assume that every consultant or service-sales representative falls within this goods-based statute.
2. Define the territory, products and authority
Identify the products, customer groups and territory covered, then deal expressly with exclusivity. A supplier selling through its website, a global framework agreement or another group company can otherwise find itself arguing about whether those sales belong to the local agent.
Our firm negotiates how reserved accounts, existing customers, new product lines and cross-border orders are treated. The agreement should also define what the agent can promise on price, credit, warranties and delivery, and when the supplier’s approval is needed. A sales role should not leave customers guessing whether a local promise binds the supplier.
3. Make commissions and reporting work together
A commission percentage is only the start. Define the sales base, discounts, returns, taxes, currency conversion and the event that earns commission. Decide how customer default, partial payment, cancellations and repeat orders affect the calculation.
The reporting process should let the parties trace a payment to the customer and transaction behind it. Address orders placed before termination but supplied or paid afterwards, disputed commissions and access to the records needed to settle them. These are negotiated terms to align with the actual sales process, rather than assumptions to leave until the final account.
In our experience, separating the commission account, the notice-period account and the claim for continuing customer business makes the legal and commercial issues clearer. Our firm reviews those issues together before negotiating a settlement or sending a demand.
4. Separate advance notice from termination compensation
Section 4 of the law addresses an agency contract of indefinite duration. Termination requires reasonable advance notice in writing, with statutory minimum periods: two weeks during the first six months; one month from the seventh month to the end of the first year; then two, three, four and five months during the second, third, fourth and fifth years respectively; and six months from the sixth year onwards. Those are minimum periods, not a substitute for considering reasonable notice and any longer contractual period.
If longer notice periods are agreed, the supplier’s period must not be shorter than the agent’s. A fixed-term agreement that expires and is extended without a new end date is treated as indefinite for this section, with notice calculated from the original start of the relationship.
Once either party gives notice, the supplier may direct the agent to stop acting immediately, but section 4(c) then requires notice pay for the period the agent is told not to work. Its statutory calculation uses the agent’s average profits over the preceding half-year or the second half of the contract period, whichever is shorter. The court can set a different amount for special reasons linked to changes in market or industry conditions.
Section 5 provides a separate compensation route when either party ends the agency. It requires all of these conditions: the contract lasted at least one year; the agent was the effective cause of new customer contracts or a significant increase in business with existing customers; and that business continues to benefit the supplier after the relationship ends.
The statutory formula uses the defined average monthly surplus profit for each year of the relationship, capped at twelve months. The average is calculated over the preceding three years or the contract’s duration, whichever is shorter. This is not simply twelve months of turnover or every commission the agent ever earned.
The supplier is not liable under section 5 where it lawfully cancelled because of the agent’s breach. The court may also reduce or refuse compensation where it considers that just and proper. A missed target or allegation of poor performance therefore needs a supported legal analysis before it is used as a reason to refuse payment. Section 6 permits departures from the law only in the agent’s favour.
5. Plan the handover before sending notice
The termination clause should address customer communication, outstanding orders, samples, marketing materials and access to business information. Decide who will complete open negotiations and what the agent must hand over, while separating the supplier’s records from material the agent holds on another basis.
The parties also owe each other a statutory duty of loyalty. A supplier replacing an agent should plan the changeover with that duty and the payment position in view, rather than first cutting off the agent and only later investigating what the contract requires. Our firm can negotiate the handover and the settlement terms as one coordinated exit.
The first termination letter should follow the legal and financial analysis, not start it.
6. Build the evidence for the commercial decision
Preserve the agreement and amendments, customer introductions, sales history, targets, performance reports, commission statements and relevant correspondence. Identify what the agent actually generated and which customer relationships are expected to continue after termination.
A useful chronology distinguishes the date a concern arose, the notice given to the agent, the response and any opportunity to correct the problem. That record helps our firm assess the breach allegation, quantify competing claims and negotiate from an evidenced position.
7. Get the contract and the exit reviewed together
For a new appointment, our firm reviews the agency model, authority, territory, commission structure and exit provisions before the business becomes dependent on them. For an existing relationship, we assess the proposed change, the notice and compensation exposure, and the evidence needed for negotiation or proceedings.
If your company is appointing, replacing or disputing payment with an Israeli commercial agent, our firm can help turn that decision into a workable agreement or a properly supported legal response. You can send us a message on WhatsApp or write to [email protected].
See also: Negotiating a Commercial Contract With an Israeli Company.
This article is for general information only and does not constitute legal advice. Laws and their application depend on the facts and jurisdiction and may change. Although we aim to keep this information accurate and current, we do not guarantee that it is complete or up to date. The article may contain omissions or errors. Reading this article does not create an attorney-client relationship with RNC Group. Before making a decision or taking action, seek advice from a qualified lawyer in the relevant jurisdiction.