Compensation for Sudden Termination of French Commercial Relationships

Q: May I claim damages even if my partner complied with the contractual notice period?

Yes. The notice period stated in the contract does not bind the court if it is deemed insufficient in light of the statutory criteria under French law. Article L. 442‑1, II of the French Commercial Code requires that the notice reflect the actual duration of the commercial relationship, sector practices, and the circumstances at the time of termination. A contract providing for a three‑month notice period in a relationship lasting fifteen years will be considered manifestly insufficient. The judge may impose a longer notice period and order the terminating party to compensate the loss corresponding to the missing notice period.

Q: How long do I have to take action after termination, and what initial steps should I take?

You have five years from the effective date of termination to bring a liability action. This prescription period applies even if the relationship was governed by a contract subject to a different limitation period. Upon receiving the termination notice, or from the effective cessation of the relationship, send a registered letter challenging the abrupt nature of the termination and requesting a reasonable notice period. This written record serves both as proof of your immediate reaction and as a basis for negotiation.

Q: Can I claim both compensation for abrupt termination and compensation for contractual breach?

Cumulation is legally possible but strictly assessed. You must demonstrate that each type of loss is genuinely distinct. For example, if your partner terminated the relationship without notice while also breaching volume commitments in the months preceding termination, you may claim, on one hand, the margin lost during the missing notice period, and on the other, losses linked to the contractual orders that should have been honoured prior to termination.

Sommaire

This is some text inside of a div block.

Click here to go directly to the firm’s compensation simulator

The abrupt termination of an established commercial relationship exposes the terminating party to potentially significant damages. For companies victim to such behaviour, the challenge is twofold: obtaining fair and swift compensation while safeguarding their cash flow during the transition period.

The calculation of this compensation follows a precise methodology: determining the notice period that should have been granted, then assessing the gross margin lost during that period.

I. Legal framework for compensation: between protection and pragmatism

‍Article L. 442‑1, II of the French Commercial Code sanctions the abrupt termination of an established commercial relationship where no written notice has been given, taking into account the duration of the relationship, commercial practices and inter‑professional agreements. This protection applies to relationships that are stable, regular and ongoing, enabling the victim to reasonably anticipate continuity of business.

Termination without notice remains lawful in two situations:

‍serious non‑performance: French case law requires a fault of real intensity. Mere allegations of loss of trust or unsubstantiated suspicions are insufficient.
‍force majeure: French courts exceptionally admit that certain external constraints may exempt the terminating party.

To explore further: Serious Commercial Misconduct: Is Immediate Termination Permitted?

II. How compensation is calculated: from the notice period to lost gross margin

A. Determining the theoretical notice period: a forward‑looking exercise

‍The calculation begins with establishing the notice period that should have been given. This is assessed at the time of termination, without considering subsequent circumstances, including the victim’s actual redeployment.

Courts generally apply a notice period of one month per year of commercial relationship, adjusted by several factors. Economic dependence is an aggravating factor: where the victim generated a significant proportion of its turnover with the terminating partner, or was bound by exclusivity, the notice period is generally increased. On the other hand, if the victim failed to diversify its risks without legitimate reason, this is not treated as aggravating.

Relationship‑specific investments that have not been amortised and are difficult to reuse also justify a longer notice period. Likewise, market structure plays a decisive role: finding an equivalent partner may require several months in certain sectors. The reputation of the product, the obstacles to redeployment and the seasonality of the activity are additional elements considered.

Case law offers helpful reference points: three months for a two‑and‑a‑half‑year relationship with prior warning, six months for a six‑year relationship in a sector with numerous alternative suppliers, twelve months for a seven‑year relationship with marked economic dependence. These are not automatic rules, but useful benchmarks.

Since the Ordinance of 24 April 2019, the law provides a mechanism of legal certainty: a terminating party that grants an eighteen‑month notice period cannot be held liable for insufficient notice. This statutory cap protects the terminating company, but does not exempt it from observing other obligations, notably maintaining prior commercial conditions during the notice period.

To explore further: Abrupt Termination: The Impact of Economic Dependence.

B. Calculating lost gross margin: a precise accounting methodology

‍Once the theoretical notice period has been determined, compensation corresponds to the gross margin the victim would have generated during that period. The method applied by French courts is the following: the loss is assessed based on the difference between the expected net‑of‑VAT turnover and the net‑of‑VAT variable costs not incurred during the insufficient notice period, from which any portion of fixed costs saved due to reduced activity may also be deducted.

In practical terms, the victim must calculate the average monthly turnover achieved with the partner over the two or three years preceding termination. Atypical years may be excluded if unrepresentative. This average monthly turnover is then multiplied by the number of missing notice months.

From this gross amount, variable costs not incurred must be deducted: raw materials, subcontracting, transport costs directly linked to the terminated activity. Fixed costs are generally not deducted, as they continue to weigh on the company despite reduced activity. However, if specific savings were made on certain fixed costs during the relevant period, these may be deducted.

This gross‑margin approach differs from a calculation based solely on lost turnover or net profit. Its purpose is to compensate the lost contribution that the interrupted activity would have made to general overheads and the company’s overall profitability.

C. Additional heads of loss: disorganisation and stranded investments

‍Beyond lost gross margin, certain specific losses may be compensated, provided they result directly from the abruptness of the termination and not from the termination itself. This distinction, which can be thin, requires a rigorous demonstration of causation.

Relationship‑specific investments that the abrupt termination prevented from being amortised are a classic head of loss: dedicated equipment, training, adaptations to production tools or stock built up in anticipation of future orders. These investments must be non‑reusable or difficult to repurpose.

Redundancy costs made unavoidable by the absence of notice may also be claimed, as may disorganisation costs: urgent search for new clients, temporary but more expensive solutions, or lost commercial opportunities. Moral damage may be recognised where the abruptness affects the company’s reputation or image.

Conversely, loss of customers resulting from the termination itself, long‑term expected profits or thwarted development prospects are generally not compensable, as they arise from the end of the relationship rather than its abruptness.

III. Compensation simulator

‍To estimate compensation related to the abrupt termination of your commercial relationship, try our compensation simulator. This tool does not take into account specific losses (e.g., disorganisation or stranded investments).

Compensation Simulator

1/4 – Relationship Data

Relationship duration (years)

Notice period granted (months)

Expected notice period (months)

Turnover Y-1 *

Turnover Y-2 *

Turnover Y-3

A question or problem? We're here to help.

IV. Risk and strategy: securing compensation and avoiding pitfalls

A. Building a robust evidential file

‍Success in claims for abrupt termination depends on the quality of the evidence provided. The victim must produce precise accounting and factual documents, failing which their claims may be rejected or reduced.

The annual accounts for the last three financial years, including income statements and notes, constitute the minimum documentary basis. These must be supplemented with documents enabling calculation of the percentage of turnover generated with the terminating partner: invoices, account statements, accountant attestations. These calculations must be supported by reliable documents, not mere estimates.

Determining the gross‑margin rate requires precise documentation identifying variable costs and how they are attributed to the activity concerned. An attestation from a chartered accountant or statutory auditor specifying the variable‑cost margin for the interrupted activity considerably strengthens the claim. Courts reject arbitrary rates and favour those stemming directly from financial statements.

To adjust the notice period, the company must produce all evidence demonstrating the nature of the activity, the time needed to regain clients, relationship‑specific investments, and economic dependence if applicable: order history, correspondence demonstrating the stability of the relationship, exclusivity agreements, and market studies on available alternatives.

To explore further: How to Prove Sudden Termination before French Judges?

B. Anticipating challenges: strategic warning points

‍Several recurring areas of dispute can undermine compensation claims. The qualification of the relationship as “established” may be challenged where it relies on successive fixed‑term contracts without tacit renewal, or where the terminating party regularly put contracts out to tender. These situations may reveal a precarious relationship.

The distinction between loss caused by abruptness and loss caused by termination itself also raises recurring difficulties. A company claiming compensation for stranded investments must prove that adequate notice would have allowed amortisation or redeployment. Likewise, redundancy costs are compensable only if proper notice would have avoided them.

The cumulation of contractual and tortious actions, although permissible, carries the risk of being accused of seeking double compensation for the same loss. The company must clearly articulate each head of loss and the corresponding compensation, ensuring no overlap. Courts warn against excessive claims and require precise qualification of losses.

Reliance on post‑termination events is another contentious area. If the victim reorganised quickly and found alternatives, the terminating party may seek a reduction in compensation. The courts generally reject this approach and assess losses at the date of termination, though some trial courts may still consider these arguments.

To explore further: Tenders and Termination of the Relationship: Is Advance Notice Required?

C. For the terminating party: limiting financial risk

‍Any company contemplating terminating an established commercial relationship must formalise its decision in writing and provide explicit notice. A registered letter clearly stating the intention to terminate, the effective date, and the duration of the notice period is the minimum. Lack of written notice, or unclear notice, can expose the company to significant liability.

Granting an eighteen‑month notice period provides maximum legal certainty, shielding the company from challenges regarding insufficient notice. However, the notice must be effective: the relationship must continue under previous conditions throughout the period. Any substantial change to pricing, volumes or performance conditions invalidates the notice and maintains liability risk.

Where legitimate grounds exist for termination without notice, the company must compile a robust evidential file demonstrating the seriousness of the partner’s breaches or the existence of force majeure. Mere relational difficulties, disappointing commercial performance or strategic reorientation are insufficient. The breaches invoked must be documented, the subject of formal notice, and serious enough to justify immediate termination.

Negotiating a settlement on the terms of termination can avoid lengthy and costly litigation. Although Article L. 442‑1, II is a public‑policy provision and cannot be waived in advance, the parties may settle compensation once the loss has occurred. A well‑drafted settlement, providing for a lump‑sum payment in exchange for a waiver of claims, secures both parties.

V. Summary

‍The calculation of compensation for the abrupt termination of an established commercial relationship relies on a rigorous but accessible methodology. Determining the theoretical notice period, accurately calculating lost gross margin and extensively documenting specific losses form the three pillars of a successful compensation strategy.

Given the growing complexity of disputes relating to anti-competitive practices, your business needs strategic support combining legal expertise and operational understanding. Grelier Avocat assists legal departments and SMEs/mid‑caps in preventing abrupt terminations, negotiating appropriate notice clauses and defending their interests in litigation.

Are you considering terminating an established commercial relationship and seeking to secure your approach? Are you the victim of a sudden termination and need to assess your compensation rights?

Contact us today for a conversation about your situation.

Get in touch

Frequently Asked Questions

May I claim damages even if my partner complied with the contractual notice period?

Yes. The notice period stated in the contract does not bind the court if it is deemed insufficient in light of the statutory criteria under French law. Article L. 442‑1, II of the French Commercial Code requires that the notice reflect the actual duration of the commercial relationship, sector practices, and the circumstances at the time of termination.

A contract providing for a three‑month notice period in a relationship lasting fifteen years will be considered manifestly insufficient. The judge may impose a longer notice period and order the terminating party to compensate the loss corresponding to the missing notice period.

How long do I have to take action after termination, and what initial steps should I take?

You have five years from the effective date of termination to bring a liability action. This prescription period applies even if the relationship was governed by a contract subject to a different limitation period.

Upon receiving the termination notice, or from the effective cessation of the relationship, send a registered letter challenging the abrupt nature of the termination and requesting a reasonable notice period. This written record serves both as proof of your immediate reaction and as a basis for negotiation.

At the same time, assemble your evidence: invoices, correspondence, annual accounts, and any documents demonstrating the stability of the relationship. Ask your chartered accountant to calculate the turnover achieved with the partner and your gross‑margin rate.

Consider launching summary proceedings (référé) if the temporary continuation of the relationship could reduce your loss. The summary‑judge (juge des référés) may order continuation of the relationship until a reasonable notice period has been completed, even in the presence of serious dispute, if the abrupt termination constitutes an obviously unlawful disturbance.

‍

Can I claim both compensation for abrupt termination and compensation for contractual breach?

Cumulation is legally possible but strictly assessed. You must demonstrate that each type of loss is genuinely distinct.

For example, if your partner terminated the relationship without notice while also breaching volume commitments in the months preceding termination, you may claim, on one hand, the margin lost during the missing notice period, and on the other, losses linked to the contractual orders that should have been honoured prior to termination.

However, you cannot claim the same loss of turnover twice using different legal grounds. French case law warns against inflated indemnity claims and requires courts to classify each head of loss precisely.

My partner argues that a drop in orders due to a sector crisis justifies terminating without notice: is this valid?

This justification may exceptionally be accepted if your partner proves that it is facing an external constraint beyond its control. French courts admit that a significant drop in orders resulting from an economic sector crisis, financial difficulties on the partner’s side, or a cyclical market downturn may exclude the abrupt nature of the termination.

However, this exemption requires evidence that the decline was real, significant, documented, and directly linked to the economic context. Your partner must provide its own accounts, market studies, or objective sector data. If the alleged decline is actually the result of a strategic decision to shift activities or switch suppliers, the argument will be rejected.

You may challenge it by showing that other clients in the same sector did not reduce volumes, or that your partner simultaneously developed new commercial relationships.

How can I prove my gross margin if I do not have detailed analytical accounting?

The lack of detailed analytical accounting weakens your claim but does not make it impossible. You should submit your annual accounts for the last three financial years, including intermediate income statements, which already provide an overview of global commercial margin.

Supplement these with an analysis of invoices issued to the partner and costs directly linked to this activity: identifiable raw‑material purchases, specific subcontracting expenses, dedicated transport.

A chartered accountant can retrospectively reconstruct a coherent gross‑margin rate by applying sector ratios and adjusting them to the specifics of your business. French courts accept this method provided it is based on objective and verifiable elements.