The Commercial Agents Regulations

Last updated: March 2023 | 3 min read

Who is an agent?

An agent is somebody who acts on behalf of somebody else, called in legal terminology a principal, who is permitted to enter the principal into a contract with someone else without themselves being party to it.

What law regulates agency arrangements?

In situations where the contract is one for the sale or purchase of goods, the relationship of agency is regulated under an Act of Parliament called The Commercial Agents Regulations.

The law is designed to protect agents who invest time or who use their network of contacts on behalf of principal from being unfairly used.

The regulations do not apply where the agent sells the services of the principal (i.e. where the principal delivers the service) or where the agent’s work is a secondary business (i.e. where the investment by the agent is unlikely to be large). For example, a situation where the agent introduces customers to the principal is not covered by the law.

The rights of agents

Just as in any contract, in the one between the agent and the principal, either side can ask for any right if he or she thinks that it will be in his or her advantage to do so. Both parties must also act in good faith towards the other.

However, the principal has obligations under law towards the agent, regardless of the contractual terms.

Full disclosure of relevant information

The principal must disclose any information to the agent that the agent would reasonably need to carry out his other duties under their contract.

Notice before ending a contract

The principal must give the agent notice before ending the contract between them. The length of this notice period depends on the number of years that the arrangement has been in place, with one month of notice required for every year of service.
Unless the agent acts in such a way to breach the agreement, when the principal ends it, the agent can claim payment.

Compensation or indemnity payments after termination of the arrangement

Compensation payments can be of any size. They are not linked to the agent’s performance. Rather, they should reflect the financial loss suffered by the agent because of the termination of contract.

There can be a provision in the agency agreement that the agent is entitled to an indemnity payment instead if he or she wishes to receive it. This is based on the amount of business that the agent has brought to the principal over the preceding five years or the period of the agency agreement if the period is shorter. The maximum payment is the average annual commission.

Therefore, when a sales agency agreement ends, the agent should think carefully about whether compensation payment or indemnity payment is likely to be larger. If it has taken the agent some time to build up customer base for the principal, even if sales are now, compensation might be a better choice.

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