Date of publication: January 2019
The Commercial Agents (Council Directive) Regulations 1993 (the “Regulations”) govern the relationship between an agent and their principal when goods are being sold (as opposed to services which are not captured under the scope of the Regulations).
Under the Regulations, an agent is defined as a self-employed intermediary who has a continuing authority to negotiate the sale or purchase of goods on behalf of another person, the principal.
The Regulations include mandatory obligations and rights of both the agent and principal, in connection with pay; commission; restraint of trade; notice of termination; and termination payments.
Both the agent and the principal are subject to mandatory obligations and are entitled to some mandatory rights.
The principal must:
Pay is usually dealt with under the terms of an agency agreement however the Regulations impose default provisions for the calculation of remuneration where these have not been expressly agreed.
An agent is entitled to commission during the agency contract, and under certain circumstances, after the contract is concluded.
Agents are also entitled to information relating to the calculation of their commission, such as relevant accounts of the principal.
A restraint of trade clause limits the agent’s activities during a certain period following termination of the agency contract. To be effective, the restriction imposed needs to be reasonable in scope of territory, customers and time.
Where an agency contract is concluded without a breach of contract, notice is required to be given. The Regulations provide minimum notice periods relating to the length of service, as follows:
On termination of an agency agreement, the agent is typically entitled to either compensation or an indemnity. The Regulations state that unless mentioned to the contrary, an agent is entitled to be compensated rather than indemnified.
Neither Indemnity nor compensation are payable where the principal terminated the agency contract because of a default of the agent which justified an immediate termination of their agreement. Likewise, where an agent terminates the contract, it will not receive compensation or indemnification, unless the termination can be justified on grounds attributable to the principal. An exception is where the agent terminates the agreement due to age, infirmity or illness, which retains an entitlement to compensation.
If a claim for an indemnity or compensation is not made within one year of the termination, the agent will lose its entitlement to the payment.
The Regulations provide basic safeguards and rules to ensure the relationship between agent and principal is a fair one. If you believe that the Regulations apply to you, and require further advice on the creation of, or amendment to, an agency contract, please contact Ben Robson at email@example.com or on +44 (0)207 067 4300.
Disclaimer: This note does not contain a full statement of the law and it does not constitute legal advice. Please contact us if you have any questions about the information set out above or require any assistance with drafting or reviewing a contract.
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