Secret (of) agents

In a highly regulated world, it is tempting for businesses to outsource some responsibilities to self-employed agencies, particularly with regard to selling products. This is understandable. Good agents know their market, are motivated, work flexibly and do not require a great deal of looking after.

However, you should not be complacent. Since 1993, all commercial agents dealing in goods who have authority to negotiate sales or purchases on behalf of their principals have enjoyed the protection of extensive legal rights. In the absence of proper agreement, a business can be stuck with an underperforming agent who may be entitled to up to three months notice and two years commission as compensation, if discharged without proper cause.

Although a written agency agreement cannot entirely negate the onerous provisions of the relevant 1993 regulation, the following should always be considered:

  • whether the agency is to be exclusive, sole or non-exclusive and whether lines of products may be withdrawn and/or specific customers excluded.
  • the extent of the territory within which the agent is to work and whether he or she is entitled to follow leads or secure orders outside it.
  • whether the agent is to be able to sell other party’s goods which may compete with yours or otherwise act against your interests.
  • the degree of control you have, such as the right to approve orders and to require the agent to actively market.
  • at what point commission becomes payable and whether there is a right to claw back commission if payment on orders is not made.
  • whether there should be a minimum sales target or other benchmark, failing which you would have the right to terminate.
  • how long the agency should run initially and whether there should be a probationary period.
  • most importantly, that any termination payment be an ‘ indemnity’, which limits the potential sum payable to one years commission.

The overall message is that, with agency law in some respects being even more one-sided than employment law, it is imperative that the balance be restored somewhat by negotiation and contract.

For more detailed information please contact Andrew Fleming on 01473 230033 or email arf@blockslegal.co.uk