Casual businessman leading meeting at office table

The relationship between commercial agents and their principals is governed by the Commercial Agents (Council Directive) Regulations 1993, more commonly known as “the Regulations”. This is UK legislation which has incorporated an EU Directive, and it was implemented in order to harmonise the rights of commercial agents throughout the European Union and to provide more protection to commercial agents.

The UK Government has recently announced that the Regulations would continue in effect without any amendments, despite a consultation by the previous Government being held on whether to cease the application of the Regulations to new agency relationships. Any change would obviously have had a huge impact on both agents and principals, but this will be welcome news to agents who enjoy more security as a result of the Regulations than would be afforded to them under standard commercial contracts.

Brexit has also not affected the application of the Regulations to agents who carry out their business in England and Wales as it remains “retained EU law”.

What is a commercial agent?

Regulation 2(1) sets out the definition of what a commercial agent is. However, this definition is not particularly clear. In general, the Courts have interpreted the Regulations widely, so it is most likely that a person will be a commercial agent if:

  1. They are independent of the principal, i.e. They are not an employee or director of the principal
  2. They have continuing authority to approach customers on behalf of the principal and market the principal’s goods. This includes contacting customers to build the principal’s customer base and/or their profile. The agent doesn’t necessarily have to negotiate on behalf of the principal (e.g. In terms of pricing) in order to be considered an agent for the purpose of the Regulations and the interpretation of the word “negotiate” is generally widely construed in the agent’s favour
  3. They receive a commission for their work (or are paid via a fixed retainer)

A person will generally not be a commercial agent if:

  1. They are unpaid
  2. The work they carry out for the principal is secondary to other work that they carry out
  3. They are a distributor
  4. They are a sub-agent
  5. They sell services rather than goods – note that downloadable software is considered goods for the purpose of the Regulations following clarification of this point in a 2022 case. Buying agents are also protected by the Regulations, provided again they are purchasing goods and not services on behalf of the principal.

Why does it matter?

If a person is considered a commercial agent, they will have the protection that the Regulations afford, namely:

  1. They have a right to request a written contract with the principal
  2. They are entitled to be paid a commission on sales that they have introduced (including repeat orders) or are within their exclusive territory, even if they did not bring in the sale
  3. They are entitled to commission on sales after termination of their agency if the order arrives before termination or during a reasonable period afterwards, provided that the sale was mainly attributable to the agent’s efforts
  4. They are entitled to commission on orders even if not fulfilled if the reason is due to the principal (e.g. The principal cancels the order or fails to deliver it)
  5. They have a right to see certain documents from the principal (such as sales ledgers) to ensure they are being paid the correct commission
  6. They are entitled to a minimum period of notice
  7. Most importantly, they are often entitled to payment of compensation or an indemnity on termination of their agency by the principal broadly to reflect the benefit they have brought to the principal’s business.

Many of the Regulations cannot be contracted out of and are automatically incorporated therefore agents and principals alike may not be aware of the rights that the agent has as a result of the Regulations.

Although the Regulations are helpful in setting out a commercial agent’s rights, in particular on termination, they have been the subject of debate between principals and agents and therefore specialist legal advice should be sought, whether you are an agent or a principal, to ensure you are clear on what rights and obligations both parties have. Our team of specialist lawyers are here to assist you.

This article is the first of a series of articles which will explain the fundamental principles of agency relationships. Look out for future articles on specific issues that often arise and how to deal with them.

This article was co-written by Gemma Mittell and Toby Claridge, associate and partner in our Commercial Dispute Resolution team.