Simple ways to avoid costly mistakes:
Are you giving your agents more rights than you intended?
Many costly legal disputes arise out of basic contractual mistakes. In most cases simple steps can be taken to avoid these costly contractual mistakes.
Many businesses engage agents to sell their products. This can be an effective way to enter into new markets by using the agent's contacts whilst maintaining control over the way in which the business's products are sold.
It is, however, imperative to ensure that if you are engaging an agent in the UK or elsewhere in the European Union, you have a written agreement in place which adequately protects your business against the effects of the Commercial Agents (Council Directive) Regulations 1993 ("the Regulations"). If this is not done, an agent in the UK or the EU will have substantial rights over and above what you would normally expect or want.
Our agent claims that if we terminate the agency, we have to pay him a lump sum. Surely this cannot be right?
If the agency is terminated in circumstances other than for a fundamental breach by the agent, he will be entitled to a termination payment. This termination payment will be payable even on the expiry of a fixed term agency agreement or where proper notice is given.
The amount of the termination payment will depend upon the value of the agency. For a successful agency, you might be looking at 2 or 3 years worth of commission. By use of appropriate terms in a written agency agreement it is possible to cap the termination payment at 1 year's commission. Also the business can stipulate a wider range of situations that would be regarded as a fundamental breach so as to avoid any termination payment altogether.
What rights will an agent be entitled to if we have given him an exclusive territory?
For example, if there is no written agreement in place which adequately excludes the right, an agent who has been given an exclusive territory will be entitled to commission on ANY sale that the business makes within that territory even if the agent himself has not made the sale or had any contact at all with the customer.
What other problems can arise if we do not have an adequate written agreement in place?
Without a written agreement, you will not be able to prevent your agent for working for a competitor after the agency is terminated. It is possible to place a restriction on your agent from working for a competitor post termination if you have appropriate clauses in your agreement.
We already have a simple agreement in place with our agent. Is this enough to avoid the Regulations?
To avoid the rights under the Regulations, the agreement must be drafted correctly; it is not enough to simply have any written agreement.
If you would like any information on putting an agreement in place to protect your business from the Commercial Agents Regulations, please contact: