We want to end our arrangement with the Israeli agent who sells our products. What do we owe him?

An American manufacturer has sold through the same Tel Aviv agent since 2014. The relationship was never papered beyond an email exchange and a commission rate. Sales have grown, the manufacturer now wants its own Israeli subsidiary, and the plan is to write to the agent giving thirty days. That letter, sent as drafted, converts a commercial decision into a claim worth close to a year of the agent's earnings.

---

Detailed Answer

Israel legislated this area in 2012 and the result surprises suppliers used to at-will termination. The Agency Contract (Commercial Agent and Supplier) Law 5772-2012 applies where a person's occupation is finding customers or generating activity intended to bring about a contract between a customer and a supplier, and it does not ask where the supplier sits. Section 4 sets minimum notice for an agency of indefinite duration on a sliding scale: two weeks during the first six months, one month from the seventh to the twelfth, then two months in the second year, three in the third, four in the fourth, five in the fifth, and six months once the agency has run six years or more. Section 5 is the provision that costs real money. Where the agency ends and the agent brought the supplier new customers or produced a significant increase in business with existing ones, and the supplier continues to enjoy that benefit, the agent is entitled to compensation equal to his average monthly profit from the agency for each year it ran, calculated over the last three years or the whole term if shorter, subject to a ceiling of twelve months. Section 3 imposes mutual duties of good faith, and Section 6 provides that the law cannot be contracted out of except in the agent's favour, which disposes of the clause your standard form almost certainly contains.

For a supplier abroad the practical exposure is bigger than the arithmetic, because these cases are decided in Israel on Israeli evidence. A choice-of-law clause pointing at New York does not reliably displace a mandatory Israeli protective statute where the agent operated in Israel, and litigating that preliminary question costs more than the compensation in a mid-sized agency. Three things reduce the number before you write to anybody. Put the relationship in writing now, with a defined term rather than an indefinite one, since the notice scale in Section 4 addresses contracts of indefinite duration. Keep the records showing which customers the agent actually introduced, because Section 5 turns on that link and the agent carries the burden of proving it. And time the ending deliberately: notice served before a major renewal season, and worked rather than paid off, keeps the agency running while the transition happens and blunts the argument that the supplier destroyed a functioning business overnight. If the plan is to replace the agent with your own Israeli entity, sequence the two, because a subsidiary that starts selling to the agent's customers during the notice period turns a Section 5 claim into a good faith claim as well. Setting that entity up is its own exercise, covered in our guide to registering a company in Israel as a foreigner.

In Practice: Section 4 of the Agency Contract (Commercial Agent and Supplier) Law 5772-2012 requires six months' notice once the agency has run six years, and Section 5 caps compensation at twelve times the average monthly profit measured over the final three years, with Section 6 blocking any contractual reduction. On an agency generating NIS 40,000 a month in agent profit, the statutory exposure on termination reaches roughly NIS 480,000 on top of the notice period itself. Claims above the Magistrates' limit go to the District Court, and a contested agency case realistically runs 18 to 30 months.

When to Consult a Lawyer

• The agency has run more than six years and nothing is in writing. That is the maximum-exposure case, and the sequence in which you paper, notify and replace decides whether the claim is six figures or negotiable.
• Your agent also holds stock, has registered your trade mark in Israel, or is named on regulatory approvals. Recovering those on termination is a separate fight, and an agent facing a compensation dispute will use them as leverage.
• You intend to appoint a distributor rather than an agent. The distinction matters, since a distributor buying and reselling on its own account sits outside this statute, and the structure has to be genuine rather than relabelled.

---

Speak With an Israeli Attorney

We quantify the statutory exposure before any notice is served, restructure the relationship where there is still time, and manage the termination and the move to a subsidiary so the two do not collide.

Contact us for a confidential initial consultation.