How agency relationships are affected by the Commercial Agents Regulations

If you’re interested in an agency relationship, this guide is relevant to you.

It covers the application of the Commercial Agents Regulations 1994 and 1997 to any agency arrangements you could be considering.

It’s highly important, because if the regulations apply to you, then many of their key terms cannot be excluded from your agency relationship and these terms can have a large financial impact if you don’t handle them correctly.

When do the regulations not apply?

The Regulations do not apply if:

• Your arrangement is a distributorship rather than an agency
• The agent is selling services rather than goods
• The agent’s activities as your commercial agent are considered secondary to the main purpose of your agreement
• Your commercial agent is unpaid, or
• The limited conditions outlined in Article 17 apply (we cover these in more detail below)

When do they apply?

For commercial agents to benefit from the protection of the Regulations, they must fall within the definition of a “commercial agent”.

A commercial agent is a self-employed intermediary who has continuing authority to negotiate (and potentially also to conclude) the sale or purchase of goods on behalf of another person (the principal).

If this definition is met, then any agent whose agency contract is terminated in particular circumstances will be able to invoke the compensatory benefit of the regulations.

The circumstances under which the agent can invoke the compensatory benefit are set out in Article 17 of the Regulations.

In short, if the agent has brought in new customers and this has significantly increased your business and the agent has now lost access to its commission and/or suffered other damaging consequences due to the terminated contract, it can invoke these regulations to claim compensation against you.

However, and this is important to note, under Article 5, the agency agreement must be evidenced in writing (unlike the UK).

The agent would only be prevented (by Article 17) from succeeding in a compensation claim against you, where:

(i) you have rightly terminated the contract because the agent has broken the terms of what you both agreed (and your draft wording gives you the right to end the relationship for those reasons)

(ii) the agent chose to end the relationship without cause (i.e. there was no breach of the agreement by you), and it wasn’t a termination on grounds of the age, infirmity or illness of the agent, such that the agent cannot reasonably be required to continue acting as your agent, or

(iii) you both agree that the agent’s rights and duties can be assigned to someone else.

What do the regulations impose on the agency relationship?

An agency agreement between an agent and their principal will set out their duties to each other.

However, certain duties also derive from the Regulations.

These duties in the Regulations cannot be excluded, even by a specific clause in the agency agreement.

The most important provision in the Regulations is the agent’s right to a compensation payment on termination or expiry of the agreement in particular circumstances.

Article 15 of the Directive provides that an agent is required to a mandatory minimum notice of termination.

In Ireland, this is:

• One month’s notice for a one-year contract;
• Two month’s notice for a two-year contract;
• Three month’s notice for a three-year contract.

You cannot agree a shorter period as this would be in breach of the Regulations.

This provision cannot be avoided.

The compensation is usually substantial, so it is important that it is dealt with carefully.

Under the Regulations, this payment is calculated on a “compensation” basis.

However, the Regulations do not specify how such compensation should be calculated.

It is not capped.

The European Commission has suggested that the amount of compensation should be equal to the sum of two years of the agent’s commission calculated on the basis of the average commission earned during the three years preceding the termination of the agency.

Failure to address this issue in your drafting can therefore lead to a much higher pay-out for the agent if your arrangement is terminated and any of the trigger circumstances are met.

Whilst our agency agreement template is drafted to comply with the Regulations, we strongly recommend that you take legal advice when you’re setting up an agency relationship.