The process of making a compensation (/an indemnity) claim following the termination of an agency, according to the Commercial Agents Regulations, is broadly familiar to most agents (with, in passing, the point of reference nowadays with regards to compensation claims (as opposed to indemnity claims) being on establishing the hypothetical sales value of the agency, as at the point of its termination).
However, not all agents are necessarily as familiar with the potential additional rights which they may have on termination, which other rights, whether assessed individually or together, could (also) be extremely valuable in monetary terms.
Those other rights are ordinarily in respect to commissions, and can be divided into a few broad categories, such as an amount to reflect what the agent should have been paid had he been afforded the correct period of notice, and (as another example:-) an amount (or amounts) which the agent should have received had his commission entitlement been properly calculated whilst the agency was ongoing, and/or had the principal paid to the agent all of those commission amounts it should otherwise have paid.
Depending on how significant the other areas of claim referenced above may be, the main basis for pursuing commission post termination of an agency might generally however be in respect to so-called ‘commissions in the pipeline’ as at the date of termination, in respect to which area the following are the key points to be aware of:-
The right to receive these so-called ‘pipeline transaction commissions’ is set out in Regulation 8 of the Commercial Agents Regulations which provides, as follows:-
‘Subject to regulation 9 below [which relates to, in relevant circumstances, apportioning commissions as between new and previous agents], a commercial agent shall be entitled to commission on commercial transactions concluded after the agency contract has terminated if—
- the transaction is mainly attributable to his efforts during the period covered by the agency contract and if the transaction was entered into within a reasonable period after that contract terminated; or
- in accordance with the conditions mentioned in regulation 7 above, the order of the third party reached the principal or the commercial agent before the agency contract terminated’.
However, and crucially, the right pursuant to Regulation 8 to be entitled to be paid commissions in respect to transactions which are concluded only after termination can be validly excluded/cut out in agency contracts.
When entering into new agency agreements (therefore) agents need to very carefully scrutinise the relevant clause provisions (i.e.:- all of them) to make sure that (and irrespective as to whether the contract wording is obvious or perhaps less obvious in order to achieve this purpose) their right (subject to satisfying the conditions laid out in Regulation 8) to be paid pipeline transaction commission post termination has not been excluded.
An example of where pipeline transaction commissions might be due is where, prior to termination, the agent was working over a sustained period in his/her efforts to procure a particular order but which order, for whatever reason, was only taken (and subsequently then concluded) within a reasonable period after termination. If, in these circumstances, the agent can demonstrate that the fact of the order being placed (and then concluded) post termination was mainly attributable to his efforts (prior, obviously, to termination), then he should receive commission in the normal way.
Again, and to reiterate, keep in mind that your agency agreement may be perfectly lawfully written so as to effectively exclude your entitlement to Regulation 8 pipeline transaction commission of the Commercial Agents Regulations, and so that the relevant contract document requires close line-by-line scrutiny before it is signed or otherwise not responded to after it is presented as a document for signature (and, in passing, I would remind agents that not responding in writing with objections to the proposed terms of any agency contract which is presented to them could be commercially fatal).
An entitlement to commission in respect to transactions in the pipeline can sometimes of course be difficult to establish. That acknowledged, the most effective way to prepare a basis for making a potential claim on termination under Regulation 8 may include maintaining throughout the period of the agency a detailed record (e.g.:- name of relevant customer, and detail as to quantities and values) of not only actual orders which have been placed, but also a record of what customers have been visited, marketed to, what products they’ve been shown, what was the feedback, and what was the level of interest that those customers had in potentially placing an order.
Whereas some agents may not be in favor of any obligation to have to file reports for submission to their principal, maintaining records in the way that I have described for their (the agent’s) own benefit may ultimately actually be very much for their own benefit, in that those records may assist an agent in getting into a position to get paid commissions in the pipeline.
Finally, Regulation 12 may be of assistance in many cases, which provides: –
12.(1) The principal shall supply his commercial agent with a statement of the commission due, not later than the last day of the month following the quarter in which the commission has become due, and such statement shall set out the main components used in calculating the amount of the commission.
(2) A commercial agent shall be entitled to demand that he be provided with all the information (and in particular an extract from the books) which is available to his principal and which he needs in order to check the amount of the commission due to him.
Clearly, therefore, in respect to those cases where the agent is unclear or uncertain as to what transactions may have been concluded either pre or post termination (and which could potentially generate a commission entitlement), Regulation 12 of the Commercial Agents Regulations entitles him or her to demand that the principal provides the relevant information and, in the case of the provisions of Regulations 12(1) and (2), nothing in any agreement can exclude the agent’s right in that regard.
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Please ensure that you obtain legal advice before acting in reliance upon anything in this article, particularly since each individual’s circumstances may necessitate a unique approach, and also on account of the fact that the law may of course at any time change. Furthermore, please be very clear that the answers given in this column may not cover or otherwise refer to all possible angles, aspects, relevant information and/or points of law and so that all or any information which is given above needs in every instance to be referred for legal advice for clarification and amplification, before being relied upon.