Regulation 17 of the Commercial Agents (Council Directive) Regulations 1993 (as amended) provides that, when the agency relationship comes to an end, agents are entitled to be indemnified or compensated. Indemnity is only available where the agency contract provided for it. Compensation will be available to an agent for damage suffered as a result of the agency relationship being terminated. Damage is deemed to occur in certain cases, and each situation requires careful analysis to determine whether and to what extent the agent will be entitled to claim compensation.

Unfortunately, the Regulations do not contain any rules for how the compensation is to be calculated, and this has been the subject of conflicting court decisions. Depending on whether the agent can prove various matters relating to the performance of the agency agreement, it is likely that the agent may be entitled to substantial sums by way of compensation, in some cases worth two or three times the average annual commission.

Agents will not be entitled to compensation if the principal has terminated the agency contract because of default attributable to the commercial agent which would have justified immediate termination of the agency contract under the Regulations. An agent who has terminated the agreement itself will also generally not be entitled to compensation.

The agent’s claim for compensation, in most cases, is likely to be the largest claim which is made against a principal. It is therefore important that both the agent, and the principal, are aware of their legal positions on the termination of the agreement. This is one of the most difficult areas of commercial agency law to navigate, and there are pitfalls for both the agent and the principal to watch out for.


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Related FAQs

It depends. Your agency contract may for a fixed term (ie, ending on a definite date), in which case the contract can normally be expected to run for that entire period. The parties may, of course, agree to vary the term of the contract if the correct legal procedures are followed. A premature termination by one party of the contract is likely to have serious consequences and will, in most cases, allow the other party to sue for breach of contract, claiming damages for any losses suffered.

If the agency contract is for an indefinite period (or is a fixed-term agreement which has been converted to an ongoing contract), then either party may terminate it by notice in accordance with Regulation 15 of the Commercial Agents (Council Directive) Regulations 1993 (as amended). The minimum periods of notice are 1 month each year (or part year) of the contract up to a maximum of 3 months’ notice. Unless otherwise agreed, the contract must terminate at the end of a calendar month. The parties can agree that longer periods of notice will apply, but the period to be given by the principal must not be shorter than the notice to be given by the agent.

If the principal does not give the correct amount of notice under Regulation 15, then it will be liable to the agent for the commissions which would have been earned during that period, and must make a payment to the agent in lieu of giving notice.

The Regulations apply to all commercial agents undertaking activities within Great Britain unless the parties have agreed that the law of another member state of the European Union is to apply. Accordingly, most agents operating in the UK are protected by the Regulations, irrespective of whether or not the agency agreement is in writing.

Even though there is not a formal written agency agreement between you and your principal, there is still in place an agency agreement. It could be that there is a letter of appointment and other correspondence recording the terms of the agency. If there is no such documentation, there will be in place an oral agency, the terms of which will have been established by a course of dealing.

The Regulations operate so as to imply into the agency agreement certain terms. These include terms about:

  • the duties owed by you to your principal and by your principal to you;
  • when commission becomes due to you and when it should be paid to you; and
  • what your rights are on termination of the agency.

It is possible to exclude some of these terms by providing for this in the agency agreement. In an oral agency agreement, these terms are unlikely to have been excluded.

This will depend on how much time has elapsed since termination. If you are a ‘commercial agent’ as defined in the Regulations then the Regulations will apply to your agency relationship whether or not you were aware of them prior to termination. However, Regulation 17(9) contains an important limitation: it states that an agent “shall lose his entitlement to the indemnity or compensation….if within one year following termination of his agency contract he has not notified his principal that he intends pursuing his entitlement”.

This provision is strictly applied. Therefore, if one year has not elapsed since termination, you should notify your former principal in writing as soon as possible and request a written acknowledgement. You are not required to provide any details of the claim at this stage. Once notification has been given, you could have up to six years from the date of termination to bring your claim. However, I would strongly suggest that you pursue all claims without delay, otherwise you run the risk of, for example, your principal becoming insolvent or vital evidence being lost or destroyed.

Note that this one year limitation does not apply to other claims you may have against your former principal, whether under the Regulations (for example for pre-termination or post- termination commission) or at common law.

 

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