Of all of the provisions of the Commercial Agents Regulations, arguably the most contentious is the provision that compensation or indemnity is due on the retirement of the commercial agent. The only requirement is that termination of the agency on the ground of age is justified because the agent cannot reasonably be required to continue his/her activities as agent.
This provision addresses an issue that English agency law had not previously come close even to considering. Its drafting in the Regulations is open to interpretation and, as such, to potential litigation, as no guidance is provided by the European Agents Directive (86/653/EEC) (the “Directive”).
When does age justify the termination of the agency?
The key question is when does age make it unreasonable for an agent to continue his/her activities, so justifying the termination of the agency?
The answer provided by a judgment in 2005 was quite straightforward: this is when the agent has reached the then default retirement age for employees of 65. But the judgment appeared not to consider the remaining limb of the test set out in the Regulations that is, “in consequence of which he/she cannot reasonably be required to continue his/her activities.”
At the time the judgement was given, it was thought that applying the default retirement age applicable to employees to commercial agents, who are by their very nature self-employed, was at best too simplistic. Now it may just be redundant.
Since 2005, things have changed. They have changed quite significantly as far as retirement legislation is concerned. The default retirement age of 65 for employees has been abolished and employers are now unable to compulsory retire their employees unless that can be objectively justified which has a high bar.
The State Pension Age is also changing significantly: rising for both men and women (on a sliding scale) to 66 for those retiring between 2020 and 2026 with further increases planned (to 67 years for those retiring from 2028 and to 68 by 2046).
If, therefore, the retirement age of a commercial agent is to be determined by reference to the retirement age of an employee (which is still debatable), the 2005 judgment appears outdated and it is questionable, therefore, whether it should still be followed.
Nor is the interpretation of the relevant article of the Directive uniform amongst EU Member States. Whilst some seem to follow a similar approach to the English courts (that is, to link the age of retirement of a commercial agent to the statutory employee retirement age), others have opted for a more literal interpretation of the Directive.
A court decision
In 2011 the Austrian Supreme Court seems to have followed a similar approach to that adopted by the English court in 2005. The Austrian judges had to consider whether the provisions of the Austrian law in relation to the payment of an indemnity upon termination for reasons of age applied to a commercial agent who retired before the statutory age of 60 but who had worked for 40 years. On the facts, it was decided that the agent was entitled to terminate her agency for reasons of age. The conclusion which the court seems to have reached is that as long as the commercial agent has reached the statutory retirement age, no assessment was required of whether the agent’s age made it unreasonable for them to continue their activities. Conversely, such assessment would be necessary if the agent decided to retire before the statutory retirement age!
In contrast in 2015 the French Supreme Court considered that, irrespective of whether the commercial agent has reached the age at which most people retire (the agent was 61 years old at the time he decided to retire), the lower court had to examine whether reaching this age made it unreasonable for him to continue his activities. By failing to do so, the lower court’s decision was defective.
It is also open under the Directive and the national laws of all EU Member States (including the UK) for an agent to terminate the agency agreement on the grounds of his ill-health or infirmity if, again, he cannot reasonably be required to continue his activities as an agent. It is therefore ironical that the French Supreme Court reached this decision despite the fact that the agent had experienced health issues for two years before his decision to retire. The Court considered that the agent had failed to establish how:
- his age; and
- his personal circumstances,
made it unreasonable for him to continue his activities.
Second it is undeniable that since 2005 - whether by choice or necessity - working lifetimes and lifespans have increased. Can it really be said that what might have been regarded as the norm in 2005 is still fit for purpose?
Take home points
Whether the reason for termination of the agency agreement is retirement due to age, ill-health or infirmity, if the agent can show that he/she can no longer reasonably be required to continue his/her activities as agent, a claim for compensation or indemnity can follow.
For principals keeping a check on the age and health of agents is one thing. Performance managing them is another.
But overall a robust agency agreement which looks to minimise exposure under the Regulations and maximises the agent’s performance can go a long way to ensuring that the principal is not caught out by the passing of time.