Am I a commercial agent?

Agency arrangements often arise informally, and we are sometimes consulted by agents and principals who are not sure whether they fall within the Commercial Agents (Council Directive) Regulations 1993 (the Regulations) or not.  The question is an important one, because agents who do fall within the protection of the Regulations are entitled to compensation on the termination of their agency (or alternatively an indemnity, which is calculated differently, if they have a written agreement and this expressly provides for an indemnity rather than compensation).

The Regulations define a commercial agent as “a self-employed intermediary who has continuing authority to negotiate or negotiate and conclude the sale or purchase of goods on behalf of another”.  What does this actually mean?

• “Self-employed” – this means not employed by the principal. It does not mean the agent has to be a sole trader; a limited company can be a commercial agent and many of our clients do operate through limited companies.
• “Continuing authority” – this means that one-off transactions are excluded. A commercial agent has to have an ongoing, continuing relationship with his principal (although fixed term agreements are permissible).
• “Negotiate” – a commercial agent must have his principal’s authority to negotiate, but the courts have shown willingness to interpret this widely to bring people within the protection of the Regulations. An agent does not need to have the authority to bind his principal, and does not necessarily need authority to negotiate on price with customers.  He does though have to have active involvement in the selling process, for example by introducing customers to the principal, generating goodwill and generally developing the principal’s business.
• “Goods” – only commercial agents who sell goods, not services, fall within the protection of the Regulations.
• “On behalf of another” – an agent who contracts with customers in his own name is not a commercial agent. The Regulations only apply to agents who negotiate or conclude contracts for their principal.

We recommend that agents and principals who are not sure if their arrangements fall within the Regulations take legal advice at an early stage (and ideally before termination is on the horizon) so that they can be sure of their rights and obligations, and plan appropriately for the future.