Sales agents and principals working under commercial agency agreements often face legal questions about rights, obligations, and disputes. To provide clarity, Salesagents.uk has partnered with Myerson Solicitors, one of the UK’s leading law firms in this field, to share their expertise.

Below you’ll find a collection of their in-depth guides covering everything from the Commercial Agents Regulations to contract clauses, dispute resolution, and the latest legal updates.

This hub is designed as a practical resource for anyone navigating UK commercial agency law.

Agency Essentials: A Principal’s Guide To Commercial Agency Law

This webinar provides a comprehensive look into the principal-sales agent relationship under UK commercial agency law.

Summary:

Presented by Suzanne Carr and Robert Brothers, specialists in commercial agency law, it covered the legal framework that governs the relationships between principals (manufacturers) and their commercial agents. Key topics included the identification of a commercial agent, understanding their rights, and managing the complexities of such relationships, particularly in the context of contract termination and the entitlements of commercial agents.

Key Learning Points:

• Understanding Commercial Agency Law: The legal definitions and requirements for establishing a commercial agent relationship in the UK, including the importance of recognizing the agent’s independent status.
  

• Commercial Agents Regulations: Insight into the regulations that protect commercial agents, how these have evolved post-Brexit, and how they differ from general contract law in the UK.
  

• Rights and Obligations: Detailed discussion on the rights of commercial agents, including commission claims, minimum notice periods, and entitlements post-termination.
  

• Contractual Considerations: How to draft and manage agency agreements to ensure they are compliant with the law while addressing practical business needs.
  

• Handling Terminations: Strategies for terminating agent contracts without violating regulatory standards, including how to handle potential disputes and compensation claims.
  

• Impact of Brexit: The impact of Brexit on commercial agency law and how current regulations might change.

This webinar offers valuable insights for companies looking to engage with sales agents in the UK, ensuring compliance with the law while fostering beneficial business relationships.

Watch the full webinar below:

Understanding Commercial Agent Regulations: A Comprehensive Overview

Myerson Solicitors is a prominent UK law firm that specializes in Commercial Agency law. The team of skilled experts provides comprehensive advice to both agents and principals, covering all aspects of commercial agency law.

At Salesagents.uk, we are pleased to partner with Myerson Solicitors to address the legal queries of our members and clients.

Myerson Solicitors has conducted two informative webinars that are essential for companies working with agents, as well as agents themselves. Both webinars are available for viewing below and are highly recommended.

Commercial sales agency: A webinar for principals (Part 1)

In this webinar, Suzanne Carr and Robert Brothers, experts in commercial agency law from Myerson, provide a detailed overview of the commercial agent regulations. The aim is to help businesses understand the legal rights and obligations of both parties under the regulations.

Introduction to the Regulations

The Commercial Agents Regulations were enacted in 1993 in England to harmonize legislation in EU member states in relation to the treatment of independent commercial agents. These regulations offer mandatory rights to agents and provide them with various protections, including minimum notice periods, compensation, and indemnity upon termination of the agency.

Determining if a Business Employs a Commercial Agent

The speakers highlight that many businesses may not be aware of the existence and effects of the regulations or may not appreciate that someone selling goods on their behalf is classified as a commercial agent. A commercial agent is defined as a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of the principal and must be independent of the principal. The agent must be authorized to approach customers and market the principal’s goods and be paid by commission, a fixed retainer, or a mixture of both.

Rights of Agents and Principals

The webinar discusses the rights of agents and principals under the UK Commercial Agents Regulations. Agents have the right to commission on sales during the agency, pipeline commissions after termination, compensation or indemnity payments on termination, and statutory notice. The principal is obligated to act dutifully and in good faith towards the agent.

Contracting Out of the Regulations

Principals can agree on additional obligations with agents and may include provisions to contract out of the regulations. However, some regulations, such as post-termination compensation or indemnity payments, are mandatory and cannot be contracted out. There is some uncertainty regarding the right to pipeline commissions after termination.

Top Tips for Principals

Myerson provide some top tips for principals, including seeking legal advice before terminating an agency contract, considering the contract’s terms and obligations, and recording any variations to the agency contract in writing. Finally, if there are serious concerns, it is recommended that principals seek advice on the options available.

Conclusion

The Commercial Agents Regulations offer important protections to commercial agents, and it is vital for businesses to understand the legal rights and obligations of both parties under the regulations. Seeking legal advice before terminating an agency contract and keeping a good record of any concerns are crucial steps for principals to protect themselves and their business.

Part 2: Commercial sales agents

Protecting Agents and Principals

In the first part of the series, Myerson specialists explained the regulations under commercial agency law that provide protection for agents and principals. An agent’s entitlements upon termination of an agency were covered in detail.

Contracting Out of Regulations

While the regulations are mandatory and cannot be excluded entirely by agreement between the parties, it is possible to contract out of certain parts of the regulations. In such cases, the agreement should be recorded in writing, and the agent should give their consent to the variation. A lack of clarity and evidence regarding what the parties have agreed often leads to disputes.

Understanding Agents’ Entitlements

In the second part of the series, Myerson discussed the entitlement of an agent to be paid commission, the right to receive a termination payment which can either be compensation or indemnity, and the right to a minimum statutory Notice Period of 1-3 months. The right to indemnity or compensation will be lost if the agent fails to notify the principal of its intention to pursue this right within one year of the termination of the agency. The discussion also touched on the practical aspects of valuing an agency, which involves various issues for a principal to consider.

Exploring Agency Law

The webinar is about agency law and its application to commercial agents. Myerson discussed various topics such as the definition of a commercial agent, the rights and obligations of agents, the types of agency agreements, termination of agency agreements, and sub-agency relationships. Myerson also answered questions from attendees about the implications of the pending repeal of the Commercial Agents Regulations and an agent’s entitlement to compensation upon retirement.

Key Takeaways

Overall, the webinar provides valuable information for both agents and principals. It is important to understand the rights and obligations of each party, as well as the regulations under commercial agency law. Agents and principals should also be aware of their entitlements and the circumstances under which they may apply. Properly documenting agreements and seeking legal advice can help prevent disputes and ensure a smooth termination of the agency agreement.

Is the Restraint of Trade Clause in my Agency Agreement Enforceable?

Since the introduction of the Commercial Agents (Council Directive) Regulations (‘the Regulations’) in 1993, commercial agents have long since benefitted from an extra layer of statutory protection than those afforded to employees.

The Regulations were introduced to ensure that the law of agency in the UK was aligned with other EU Member States. Since the UK’s departure from the Common Market, the Regulations continue to have effect in the UK as retained EU law.

The Regulations provide a statutory framework for any agreement between a principal and its commercial agent. They confer duties upon both principals and agents.

They also allow agents to receive compensation (on either the ‘compensation’ or ‘indemnity’ basis) on termination of the agency agreement, save in certain circumstances.

As with a contract of employment, principals will often seek to protect their interests by including restrictive covenants to restrain the activities of a commercial agent upon the termination of an agreement.

Regulation 20 sets out the requirements for any post-termination restrictions to be valid.

This article considers the common law position concerning restraint of trade and sets out the parameters prescribed by Regulation 20, which will both apply to a commercial agency agreement that is governed by English law.

Restraint of Trade – The Position at Common Law

Although it is well established that the doctrine of restraint of trade applies to covenants in employment contracts and between buyers and sellers of a company, the position is slightly more nuanced where the commercial agency is concerned.

While restrictions during the lifetime of the agreement are likely to be deemed acceptable, more caution is required with post-termination covenants.

The courts look at the parties’ relationship and consider whether it is analogous to an employment relationship.

Where the doctrine of restraint of trade applies, clauses which seek to restrict trade are regarded as void (and therefore unenforceable) unless they are designed to protect a legitimate business interest and are no wider than is reasonable.

This test is applied by reference to the interests of the parties concerned and the interests of the public.

In determining if the clause is void, the courts will consider the parties’ respective bargaining positions and the nature of the restriction.

Critically, it will consider whether the restraint goes further than is necessary to protect a legitimate business interest and whether it is reasonable between the parties.

Regulation 20

The effect of Regulation 20 is that to be effective, any post-termination restraint of trade clause
must:

• Be concluded in writing. A written memorandum of an oral agreement will not suffice for these purposes.
• Relate to the geographical area, group of customers and kind of goods covered by the agency.
• Last for no more than two years from termination.
• Comply with competition laws and common law restraint of trade principles.

Whether a clause drafted to last more than two years will fail in its entirety will depend on any severance clause in the agreement and whether the ‘blue pencil test’ applies.

In other words, if the clause is too wide in its scope, can words be deleted to ‘narrow’ the scope of the clause and thus make it enforceable?

In the context of commercial agency, there have also been cases where restrictive covenants for less than two years have been deemed invalid, violating the common law principles described above.

Comments

To be confident of enforceability, parties should seek advice concerning any post-termination restrictions before entering into any agency agreement.

One must balance the requirements set out in the Regulations with the common law position and competition laws.

Commercial agents: The underperforming agent – hidden by inflation?

The recent hiatus within the Government and other economic pressures have meant rising inflation, and this will have an impact upon sales agents and their principals.

As inflation continues to rise and principals impose price increases on their products, the underperforming sales agent may go undetected. As an agent’s commissions are usually based on the value of sales, an agent’s commission income may appear to be rising, whereas the reality may be that the number of sales may have flatlined or even dropped. This underperformance may go unnoticed for some time, but what happens when the principal realises that the agent is not performing satisfactorily, and its underperformance is being masked by inflation?  

Express sales targets

An agency contract may contain express sales targets. Some principals may review these targets regularly, but others may only be reviewed periodically. Some agency contracts will provide the principal with the ability to adjust sales targets in certain circumstances, one of which may be to reflect price rises of its products. Other agency contacts may provide the principal with little flexibility to adjust sales targets to allow for this type of scenario.

It is important that principals are aware of their contractual rights to adjust sales targets in different circumstances.

An agent may be hitting its sales targets and potentially being paid a bonus as a result, when the reality is that the agent’s performance may have significantly declined, and payment of a bonus may not be deserved. The principal will want to address this issue as quickly as possible.

Recording performance issues

If an agent is underperforming, the principal should address this as soon as possible. It is always advisable for principals to record in writing any performance issues and discussions/meetings with the agent, which will create a paper trail which will assist the principal if the performance issues are not resolved.

Flexibility to adjust contractual sales targets

The principal may want to adjust the sales targets to reflect the price increases of products, ensuring the agent’s performance is fairly rewarded. However, depending on the flexibility afforded within the contract to adjust sales targets, it may not be that simple. A principal must be careful not to seek to unilaterally impose new sales targets where it does not have the contractual right to do so, as that could amount a serious breach of the agency contract, ultimately giving rise to the right of the agent to treat the contract as terminated and to claim a termination payment under Regulation 17. A principal should ensure it seeks advice so that it understands clearly to what extent it can adjust any existing contractual sales targets or impose new targets.

Impact of inflation on termination payments

The rise in prices of a principal’s products is likely to mean the agent is earning increased commissions as a result. Many principals may be wondering how this might affect the value of compensation and indemnity payments in the event of the agency being terminated

If an agency is terminated and the agent is entitled to a termination payment under Regulation 17, the value of the that payment is likely to be affected as a result of the rise in product prices. Whilst an agent’s commissions may have risen and the performance of the agency may appear to have increased, that increase in performance may be illusionary. As discussed above, despite a rise in commissions, the performance of the agency may have declined.

Instead of typically looking to commission income when calculating compensation, it will be necessary to consider the number of sales. That will ensure the real performance of the agency is captured. A declining agency will, in the case of compensation, attract a lower multiple than a steady agency or one where performance is rising. 

Similarly in the case of an indemnity, any underperformance issues should be identified and reflected appropriately in the calculation of the indemnity payment under Regulation 17. At first blush it may appear as though an agent has significantly increased the volume of business with certain customers due to price rises of products, when in fact the number of saes may have flatlined or actually decreased. In those cases, such customers may be able to be excluded from the indemnity calculation. A failure to hit sales targets could also be used as an argument that the payment of the full amount of an indemnity is not “equitable having regard to all the circumstances” (which is one of the factors stipulated in Regulation 17).  

Conclusion

In conclusion, principals are advised to take a close look at how their agents are performing, address and record any performance issues with the agent, and seek to adjust sales targets to allow for inflation and price rises where they have the contractual right to do so.

The use of mediation in agency disputes

This article provides a brief overview of the mediation process in the context of commercial agency claims, and highlights some of the advantages of choosing mediation as a form of alternative dispute resolution for this type of claim. It’s written by Adam Maher and Suzanne Carr at Myerson.

Commercial agency claims

Commercial agency claims frequently arise when a principal terminates a commercial agent. That termination event triggers the agent’s statutory termination entitlement under the Commercial Agents (Council Directive) Regulations 1993 (“the Regulations”). Ordinarily the agent will be entitled to receive compensation or an indemnity, which is designed to compensate for the loss of the agency.

What happens following termination of an agency?

After termination, the agent’s claim is assessed by ascribing a value to its entitlement pursuant to the Regulations. In the case of compensation, that involves a detailed analysis of the agent’s income and, expenditure. The agent may also be entitled to ‘pipeline’ commissions on future orders. The agent will set out its claim in a court compliant letter of claim and send this to the principal. The principal may dispute the agent’s claim and will set out the reasons why in a formal letter of response. If the parties cannot reach an agreement to resolve the dispute, the next step is for the agent to issue a claim in the Courts.

Costs of court proceedings

Court proceedings are generally very expensive. There are various procedural steps before a claim gets to trial, and parties should not expect the trial to take place for at least 12 months. The significant costs incurred by both parties are just one of the reasons why agents and principals are encouraged to mediate in an attempt to reach an early settlement.

What is mediation?

Mediation is a flexible, voluntary, and confidential form of alternative dispute resolution, in which a neutral third-party mediator assists parties to work towards a negotiated settlement of their dispute. The parties retain control of the decision to settle, and on what terms.

The purpose of mediation?

The purpose of the mediation is to achieve a settlement which both parties can live with. That means both parties are required to compromise, and it is often said that a good, mediated settlement is one which neither party particularly likes. It is all about risk and certainty. A negotiated settlement enables a principal to ‘buy off’ the risk of losing on everything and paying more to an agent, and the agent ‘buys off’ the risk of losing and paying the principal’s costs.

The choice of a mediator

The parties are free to appoint the person they consider most appropriate to mediate the claim. The mediator may be a lawyer or someone with technical expertise or experience in a particular sector. In the context of commercial agency claims a mediator that has experience and knowledge of the Regulations (usually a lawyer) is extremely helpful.

The mediator remains impartial throughout. The mediator’s neutrality provides them with credibility in the process.

Where does the mediation take place?

The parties choose a neutral venue to meet face-to-face with lawyers present, although in the face of the current pandemic, mediations are usually facilitated remotely with the parties attending via video link. This works equally well.

Before the mediation

The mediator usually has discussions with the lawyers in advance of the mediation. This ensures formalities have been complied with and assists in identifying the key issues. This helps to ensure that time is not wasted at the mediation. The parties will generally agree on a core bundle of documents for use at the mediation. Their lawyers will also prepare position statements providing a summary of the facts of the dispute, points of agreement and points of dispute.

Expert valuation evidence

When mediating commercial agency cases, it is particularly useful for the parties to obtain expert valuation reports for the purposes of the mediation only. These are not formal court compliant expert reports but do provide a reference point during negotiations.

At the mediation

A mediation usually begins with a joint session attended by all parties and their lawyers. During this session, the mediator will provide an overview of the process and his role in that process. That is often followed by an opening statement from each party.
The opening session is then followed by private discussions between the mediator and each party, and hopefully the exchange of settlement proposals.

Who pays the costs of mediation?

Who bears the costs of the mediation is a matter for agreement between the parties. Usually, the parties agree to split the mediator’s fees.

Potential advantages of mediation in commercial agency cases

Mediation offers several advantages including:

• Saving time and costs. More than 90% of court cases settle before trial, and agency cases are no exception.
• Achieving resolution quickly. Mediation can be attempted at any time. It can be effective to mediate early before costs escalate.
• Party autonomy. The parties negotiate their own settlement in mediation, and therefore maintain control over the outcome of the dispute.
• Objectivity. It can be difficult for parties to be objective about the strengths and weaknesses of their case. The mediator, as a neutral third party, can reality test each party’s understanding of the strengths and weaknesses of their position. He will also get parties to think about the potential for loss, expense, time, distractions and uncertain court outcomes.
• Confidentiality. Court actions are matters of public record, but what takes place during mediation is confidential. Whether mediation occurs before or after court proceedings are commenced, the entire mediation process is “without prejudice”.
• Preserving relationships. Mediation is flexible enough to address all parties’ interests. There is no prescribed from. This can make it easier to preserve relationships between the parties. It can also make the termination of relationships more amicable.
• Creative settlement. A court giving judgment will focus on the legal position and decide the case on the merits. Settlements achieved in mediation can consider much wider issues and take account of personal and commercial interests.
• High success rate/satisfaction levels. Mediation has a high success rate. Mediators who responded to CEDR’s eighth mediation audit in 2018 reported that the overall success rate of mediation remains high with an aggregate settlement rate of 89%; 74% achieving settlement on the day of mediation and 15% shortly after mediation.

Myerson

All content above has been contributed by Myerson Solicitors.

Myerson Solicitors is one of the leading Commercial Agency law firm outside of London. The team of both contentious and non-contentious experts is experienced in advising both agents and principals on the full spectrum of commercial agency law. Myerson has three experienced solicitors who deal with all commercial agent issues for salesagents.uk:

Commercial agents directive – Q&A with the European Commission

A few years ago Salesagents.uk contacted the European Commission and asked for a live video interview. They turned down our proposal for a live interview about the commercial agents directive. Instead, they kindly took the time to answer some questions in writing.

EU court cases on Commercial Agents Directive

There are 12 preliminary Judgments of the Court of Justice of the EU replying to questions from national jurisdictions regarding the interpretation of the Council Directive 86/653/EEC on commercial agents in cases between commercial agents and principals.

Below you will find an overview of the judgements of the cases.