Written by Steve Sidkin
1 November 99 In the last eighteen months the headlines have come thick and fast. Alcoa acquiring Inespal. Pechiney, Alcan and Algroup joining together. Alcoa bidding for Reynolds.
The effect of consolidation in the metal industries are well known when it comes to employees. Less so the effect on agents which may face the loss of businesses built up over many years when consolidation results in rationalisation of agency groups.
It was with this effect in mind that the European Self-Employed Agents Directive was made. Despite its title, it applies equally to partnerships and companies acting as agents. Its object is to provide protection and benefits to agents throughout the European Union. Although the Directive was made in 1986, it was not until 1994 that it had force throughout the European Union.
The Directive was implemented in Great Britain by the Commercial Agents Regulations 1993. Prior to the Regulations coming into force, agents enjoyed no statutory protection. This changed with the Regulations. This is best illustrated by the statement made in the first judgement to be given in the Court of Appeal concerning the Regulations:
“Commercial agents are a down-trodden race and need and should be afforded protection against their principals”.
The Regulations provide no-fault protection for most terminated agents. Accordingly, an agent will be entitled to either a payment of compensation or an indemnity at the end of the agency agreement, however this occurs.
The Regulations do not quantify the amount of compensation to be paid. It is usually taken to be a multiple of the commission received by the agent during the final three years of the agency agreement. In contrast, an indemnity to be given to an agent will be limited to a maximum of one year’s commission averaged over the previous five years.
Many principals still find it difficult to accept that the agent is entitled to compensation or an indemnity even if the agreement is terminated in accordance with its terms. The situation is exacerbated for a principal when told that an agent will have potentially four further claims on termination!
The first arises if the agent is terminated without being given proper notice. The Regulations lay down the minimum notice depending upon the duration of he agency agreement. It can be up to three months. But the Regulations specify that in the absence of agreement between the parties, a notice must expire at the end of a calendar month. If the principal gets it wrong, a notice period amounting to three months and thirty days could be claimed by the terminated agent.
On termination the agent will also be entitled to commission accrued but unpaid. Usually this is recognised by principals without too much difficulty. Less so, however, the agent’s right to post-termination commission. The Regulations provide for an agent to receive commission on transactions entered into within a reasonable period after termination of the agency agreement where those transactions resulted from efforts made by the agents during the agency. What is a reasonable period will vary and depend on the characteristics of the particular industry. But there is no reason why it cannot be for a period of eighteen months following termination, if not longer.
Sometimes a principal accepts an order obtained by an agent and then fails to deliver against that order. There can be a number of reasons for non-delivery such as late delivery, short delivery or simply poor quality. Although it is not permitted under the Regulations, an agency agreement often provides for the agent only to receive commission if and when the principal has been paid. Where, however, the principal is to blame for not being paid (as in the case of non-delivery of an accepted order), the agent will still be entitled to commission on such orders.
The Regulations amount to a sea change for principals and agents alike. But with agents receiving termination packages of six figures or more, principals ignore the Regulations at their peril.
This briefing note is for general information. For advice in applying this general information to your specific circumstances, please contact Stephen Sidkin or any member of the Fox Williams’ agentlaw team.(www.agentlaw.co.uk)