Questions and Answers on Agency Law - October 2021

QUESTIONS AND ANSWERS ON AGENCY LAW – OCTOBER 2021

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‘MINIMUM EXPECTATIONS’

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Q.????????I am seeking compensation in respect to an agency which I had for a number of years, but which has now been terminated by my principal. In respect to this, I understand that I am entitled to at least a year’s average annual commission earnings (as compensation). Is this correct?

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A.????????No - the Commercial Agents (Council Directive) Regulations 1993 do not stipulate any minimum levels of compensation.

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Further to the above, and pursuant to the Commercial Agents Regulations, there are in fact two ways of (where of course there is an entitlement) compensating an agent on termination of an agency, one being the payment of actual ‘compensation’, and the alternative being the payment of ‘an indemnity’. If however you have no written agreement with your principal, or, if you do have a written agreement but it does not specify that the parties have agreed that any ‘compensation’ payable would be ‘an indemnity’ then, by default, any prospective entitlement on termination would instead and indeed be to actual ‘compensation’.

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Whereas there are several important differences as between actual ‘compensation’ and ‘indemnities’, and in how they are calculated, they are however the same in one respect. That is that neither basis provides for (as a starting point) the payment of any minimum amount (although, and incidentally, ‘indemnities’ as to their maximum amount are however capped, and that being at the equivalent of one year’s earnings calculated as an average of the previous 5 years (or as an average of however many years the agency was ongoing if, at termination, the agency lasted for less than 5 years)).

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The above explained, the respective bases for calculating actual ‘compensation’ and ‘indemnities’ are very detailed and, in each case, as to whatever amount may be payable will depend on the relevant individual facts. However, and to reiterate, there is nothing whatsoever in the Commercial Agents Regulations which entitles an agent to any minimum sum.

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It should be pointed out in passing that, and as a consequence of your agency terminating, you may also have other rights and entitlements (i.e.:- possible rights which are in addition to a potential right to ‘compensation’ or to ‘an indemnity’).

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It should also be made clear that, for the purposes of this Answer, various assumptions have been made, such as (for examples) that the background circumstances of the Question are that the principal did not have any valid grounds to terminate the agency on a forthwith basis, and/or that the requisite notification of intention to pursue the agent’s entitlement to ‘compensation’/an ‘indemnity’ has been (or will be) properly given, within the stipulated regulatory timeframe.

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‘NOT A COMMERCIAL AGENT’

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Q.????????Following the termination of my agency, I am seeking payment of compensation from my principal. However, it is being argued that I am not in fact entitled to any compensation on the basis that the role which I carried out was outside the scope of the definition of a ‘commercial agent’. Specifically, it is being argued that I did not have any authority to ‘negotiate’ sales. Can this be correct?

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A.????????The definition of a commercial agent is set out in Regulation 2(1) of the Commercial Agents Regulations, and provides that a ‘commercial agent is a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (‘the ‘principal’), or the continuing authority to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal’.

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Following on from the above and whereas there may be other relevant considerations for determining whether or not an agent is a ‘commercial agent’ for the purposes of the Regulations, establishing whether the agent is someone who ‘negotiates’ ought not however ordinarily to be too difficult. This is because there have been various authoritative case decisions over the years which establish that the scope of the word ‘negotiates’ is in fact quite wide for the purposes of the Regulations. For example, the cases of Parks v Esso Petroleum (2000), PJ Pipe & Valve Co Ltd v Audco India Ltd (2005) and Nigel Fryer Joinery Services Limited v Ian Firth Hardware Ltd (2008) variously establish that a ‘commercial agent’ means any entity which is involved in the selling process on behalf of a principal (with ‘selling process’ sufficing to mean that the agent merely acquires or promotes business for and/or otherwise develops goodwill on behalf of its principal).

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Essentially, therefore, the scope of what constitutes being a ‘commercial agent’ is potentially a lot wider than the definition as set out in Regulation 2(1) might otherwise suggest.

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‘CONSEQUENCES OF AGREEING A PARTICULAR DISADVANTAGEOUS TERM’

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Q.????????I already agreed in my agency contract from several years back that no form of compensation is payable on termination. Am I now therefore prevented from pursuing any such claim?

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A.????????No, not unless (as one example) you are otherwise in breach of some other contractual term, which breach might of itself now prevent you from pursuing a claim for (as the case may be:-) compensation or an indemnity.

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Further to the above, Regulation 19 of the Commercial Agents Regulations makes clear that, if such a step being taken would be to the detriment of the agent, the parties to an agency may not ‘derogate from’ (i.e.: - may not artificially diminish the value of or otherwise exclude altogether) the regulatory provisions potentially entitling the agent to, in principle, either compensation or an indemnity, on termination.

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The purpose therefore of Regulation 19 is that, if, prior to the termination of the agency, you agree a contractual term whereby, following termination, you will not pursue a claim for compensation or (as the case may be:-) an indemnity, such a provision would (fortunately for you) be unenforceable against you (as is plainly a ‘derogation’ to your disadvantage). The same applies if, prior to termination, you agreed to accept just ￡x or ￡y as compensation/or as an indemnity in circumstances where you might otherwise in fact have been entitled to more than ￡x or ￡y (i.e.:- were it not for the clause restricting the scope of your post termination compensatory entitlement).

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Whereas therefore Regulation 19 seeks to protect agents from their own ‘error of judgment’ in agreeing, prior to termination, to the above described sort of disadvantageous provision, agents need however to be clear that there are no such regulatory safeguarding provisions in relation to where, after termination, the agent accepts, in full and final settlement of all of his claims, a sum in respect to compensation/an indemnity which sum is less than he might otherwise have been entitled to (including where, for example, the calculation of the relevant amount paid might be by reference to a clause which, pursuant to Regulation 19, was otherwise in principle unenforceable against the agent prior to termination).

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‘NOTICE PERIOD’

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Q.????????After 7 years as an agent on behalf of a particular principal, my agency has been terminated on just a month’s notice. My understanding however is that I am entitled to at least three months’ notice of termination. Am I correct in this, and what action should I accordingly take?

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A.????????Generally speaking, what you are saying as to the length of the notice period (in respect to an agency which has lasted continuously for longer than two years) is correct. However, it may be as one possibility that your principal was entitled to terminate your agency on a ‘forthwith’ basis on account of some relevant breach of obligation on your part (but has nevertheless opted to at least afford you one month’s notice, notwithstanding), or, and as another possibility, it may be that there is a (favourable) provision in your agency contract which entitles you to perhaps a longer period of notice than just one of the basic minimum periods as provided for in Regulation 15 of the Commercial Agents Regulations.

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There is also the point that, unless otherwise agreed, the end of the notice period should ordinarily have to coincide with the calendar end of the month.

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The above all explained, and even if the period of notice which you are being afforded is (for whatever reason) less than it otherwise should be, if your principal is not wanting you to continue in your agency function beyond a certain date, then you absolutely must respect that and cease those activities when requested. Following termination, you may then look to bring (in addition to whatever other claims you may have) a claim for ‘damages in lieu of notice’ (i.e.: - a sum reflecting what you would have earned over the notice period) after termination.

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? David Bentley, Bentley Agency Law Limited, Bentley & Co Solicitors 7 Littlemoor Road, Pudsey, Leeds, LS28 8AF?

T: - 0113 236 0550 e-mail:- [email protected].

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‘The only law which we practice is the law as it relates to commercial agents’.

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Please note that: -

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The above Questions and Answers provide (and are intended to provide) just a ‘snap shot’ of the law as it is today. Each of the Answers set out moreover assume a context or a set of circumstances (which, were they any different, might then give rise to a (materially) different Answer), and potentially have caveats, exceptions or qualifications.

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Anyone reading this article should therefore take legal advice specific to their individual circumstances, and should not therefore rely on any information or perceived conclusions to be drawn from any given Answer.

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Any references to a Regulation number, the ‘Regulations’ or to the ‘Commercial Agents Regulations’ is a reference to the (relevant regulation of the) ‘Commercial Agents (Council Directive) Regulations 1993’.

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