Contract Language. An evergreen clause may extend agent commission payments and typically provide for continuing commission payments on agent-generated revenues following the expiration or termination of the agent agreement. In simple terms, and in our view, an evergreen clause simply means that as long as the carrier gets paid by a customer that the agent generated, the agent gets paid the commission to which he/she is entitled.
However, a typical evergreen clause in an agent agreement might state the following: “Master will pay Agent a commission of __% of gross billed monthly revenues for all services sold by Agent to XYZ Company.” This language leaves open as many questions as it answers. For example, it does not address how long the payment obligation lasts or in what, if any, circumstances the obligation would not apply. Thus, we recommend that language be added that makes it clear that the obligation to pay commissions is absolute, survives termination and continues for as long as the carrier receives payment from a customer acquired by the agent.
Of course, each evergreen clause is different and the terms vary by agreement. Generally, evergreen clauses pertaining to agent commissions should specify the terms under which the commission will be paid, including:
- the commission amount or percentage
- to whom it should be paid
- the items(s) or event(s) are tied
- whether the commission survives the termination of the agent agreement
- any exceptions
- notice requirements
In addition, non-commission-related terms such as those concerning termination are, and should be, separate from the agent’s rights to his/her commissions and should not impact them. While termination generally allows the carrier not to take new business generated by the agent, it does not — and should not — impact the agent’s right to commissions on existing business provided the agreement includes a properly-drafted evergreen clause.
Governing Law. There are many legal cases pertaining to evergreen clauses or “perpetual obligation” terms as they pertain to certain business transactions. For example, federal courts have ruled that evergreen letters of credit must be "clear and unequivocal." They also have upheld evergreen clauses in collective bargaining agreements. However, few, if any, cases have addressed evergreen clauses as applied to agent commission agreements. This either means that evergreen clauses have been well written and crystal clear; that they are incredibly one-sided and favor the carrier/master; or that agents don’t have the time, will, desire or resources to take on well-heeled multinational corporations. Given the number of recent disputes regarding agent commission payments, we suspect that the lack of evergreen clause cases is a function of agents facing pro-supplier agreements and the prospect of protracted litigation to enforce the agent agreement.
