Commercial agents have traditionally performed their role in an itinerant manner, away from the principal’s premises (for example, by visiting customers and attending trade shows). Much of a commercial agent’s sales activities can now be performed from any location, provided that the WIFI signal and phone reception are up to scratch. However, this is not always the case. In certain circumstances, it may be convenient for the commercial agent to use office facilities at the principal’s premises. But how does this affect the commercial agent’s status, bearing in mind that independence is critical in maintaining status as a commercial agent?
The European Court had cause to consider this question last month in the case of Zako SPRL v Sanidel SA.
Sanidel (the principal) operates a business selling bathrooms and fitted kitchens. Zako (the agent) was responsible for the fitted kitchen department. Zako’s role was varied. It went beyond the normal role of a commercial agent in negotiating or concluding sales contracts. For example, Zako was responsible for promoting the kitchens and concluding sales on Sanidel’s behalf, and also looked after the planning and fitting of the kitchens and had a number of other managerial and after-sales roles within the kitchens department. Zako also had a permanent work station, telephone and email address at Sanidel’s premises. Zako was paid a monthly lump sum, travel expenses and commission for all of its activities. Indeed there was no distinction made between Zako’s commercial agency role, and Zako’s other activities. Crucially, the parties agreed that Zako performed its tasks completely independently of Sanidel.
Following Sanidel terminating the agreement summarily and refusing to pay damages for failure to give proper notice and an indemnity, Zako eventually claimed under the Belgian law corresponding to the Commercial Agents Regulations.
Unsurprisingly, the parties were in dispute as to whether Zako was a commercial agent. As a subsidiary point, Sanidel also claimed that Zako had brought its claim out of time.
The European Court had to determine:
- whether or not a commercial agency existed. The European Court decided that a person can be a commercial agent even though: they perform their business activities from the principal’s premises; or
- they have other ‘non-commercial agency’ roles and responsibilities for that principal; or
provided that the agent’s working practices and other responsibilities do not prevent the agent from performing their commercial agency activities in an independent manner.
In reaching its decision, the European Court pointed out that:
1. To be a commercial agent a person must:
- be a self-employed intermediary and
- have continuing authority,
- [to] either negotiate or negotiate and conclude the sale and purchase of goods on behalf of and in the name of the principal.
There is no additional requirement that the activities must be performed away from the principal’s premises or in an itinerant manner.
2. When considering whether or not an agent’s independence is compromised through their close proximity to the principal, it is necessary to consider whether the agent is subject to the principal’s instructions, whether the agent’s ability to organise its own activities is limited or whether the economic risks of acting independently are affected.
3. When considering whether or not an agent’s independence is compromised through the requirement to perform other non-commercial agency activities, it is necessary to address the nature of and the manner in which the tasks are carried out, the proportion of the additional tasks when compared with the commercial agency tasks, the method of calculation of remuneration and the reality of the financial risk incurred.
Take home point
1. In considering the case before it the European Court touched on the issue of whether a commercial agent who does have continuing authority to negotiate the sale or purchase of goods - but also undertakes other kinds of activities for the principal without those other activities being secondary to the first type of activities - precludes that person from being classified as a commercial agent.
In essence the European Court was considering the exception to the protection given to commercial agents set out in the European Agents Directive where the commercial agency activities are secondary to such other activities.
Whilst this was not of assistance to Sanidel as Belgian law does not include this exception, the Commercial Agents Regulations do include this exception!
Going forwards it can be expected that (where the facts allow) principals will give greater consideration as to whether or not reliance can be had on the exception in order to avoid a claim by an agent for compensation or indemnity.
2. It is also possible that when appointing a new agent a principal may consider requiring the agent to undertake such activities in order to give rise to the possibility of being able to rely on the secondary activities exception at some point in the future!
3. Irrespective of this commercial agents with roles which go beyond negotiating or concluding sales contracts on behalf of their principal, or who regularly use their principal’s premises or equipment, should scrutinise their written agency agreements and their working practices to satisfy themselves that they are acting independently in relation to their commercial agency activities.
4.A failure by a terminated commercial agent to claim compensation or indemnity within the applicable time limits will result in the claim failing.