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Agency agreements

Agents and Principals

The Commercial Agents (Council Directive) Regulations 1993

For many areas of industry, and particularly for many newly formed businesses, one of the easiest and most  cost-effective ways to market your products or services, is by engaging Sales Agents. Typically, the Agent will be self-employed, and thus not an employee of the Principal’s company, and will be paid a commission based purely on the orders they take on the Principals behalf. In effect there will be two parties to the contract, the Agent and the Principal, the Agent will take orders on behalf of the Principal, whom is a manufacturer, importer, or distributor of the product being sold.

It is important for the Principal to provide the Agent with a contract, as this provides a guideline as to how the agreement between the two parties will be governed, and in the event that a dispute arises, this may well prove very cost effective to the Principal. In the event that a contract is not put in place then, the agreement between the two parties is governed by the The Commercial Agents Regulations 1993, which arguably provides more safeguards for the Agent than the Principal, as they will provide for compensation as opposed to indemnity to be applicable to any dispute that arises.

Whilst the regulations state that both parties must act dutifully and in good faith, however, there are many other issues to consider. The Principal would expect that the Agent would operate the territory for which they have been appointed, and take orders on their behalf, and open new accounts where feasible to the best of their abilities. In contrast, the Agent would expect the Principal to process any orders sent to them by the Agent appropriately, and within a reasonable timescale, and to be paid for the work that they have undertaken promptly.

Why it is important for the Principal to have a written agreement in place.

  • Without an agreement, the Regulations provide for compensation as opposed to indemnity to be awarded, however, indemnity caps any award if a dispute arises to 1 years commission, compensation by contrast can result in an Agent receiving compensation worth much, much more.
  • It is also important that the territory, and the customer base that the Agent will cover is defined, and as to if the Agent will be appointed on a “non-exclusive” basis.
  • The Principal should also define what constitutes a “House Account”, as there maybe national, or larger businesses that they are seeking to do business with within the territory where the Agent is appointed.

The impact for both parties when the contract is terminated

  • The Agent will have established a relationship with the Principals customers when the contract ends, however, the one thing that the Principal should look to avoid is a situation where the Agent leaves to work for a direct competitor. Equally, the Agent will want to avoid any restraint of trade clauses being written into the contract, thus, legal advice is important.
  • If you are an Agent and your contract has recently been terminated, it is important to note that you have 1 year from termination with which to bring a claim for indemnity or compensation, if you feel that you were unfairly dismissed.

For more information please call 01908 662277 and ask for David Dees or Tom Silverwood-Cope

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