Bournemouth Solicitors

AGENCY LAW FAQS

What is an agency relationship?

There are three classes of parties to an agency relationship: agents, principals and third parties.  The agent is a person who has been given the authority to alter the legal position of the principal with respect to third parties.  Usually this will mean the agent can conclude contracts with buyers on behalf of the principal.  The principal is owner of goods or services which the agent is authorised to dispose of.

Agency relationships come in many different forms.  A sales agency agreement is a well-known example.  The sales agent agrees to sell goods on behalf of the principal (the owner of the goods or services) in return for a commission.

What is the difference between an employee and agent?

Agency relationships are distinguishable from usual employee-employer relationships in the sense that agents are not employees, meaning the agent and principal do not have the usual rights and obligations associated with employee-employer relationships. The agent cannot, for example, claim he has been unfairly dismissed.

The distinction between employee and agent can, however, be quite fluid.  In many everyday situations, an employee may also be acting as an agent.  In a shop, for example, an assistant will act in both capacities.  Shop assistants are agents when they hand over goods to buyers but also employees when carrying out the duties of their employment.

How does EU law influence agency law?

Under The Commercial Agency (Council Directive) Regulations 1993 agents are afforded certain rights more typically associated with employees, including the right to receive a minimum amount of notice and right to ‘compensation’ or to be ‘indemnified’ when the agency agreement is terminated.

How much notice is required under The Commercial Agency (Council Directive) Regulations 1993?

Notice requirements kick in where a fixed term agreement has overrun, allowing the agreement to be classed as one for an ‘indefinite’ period.  For agreements of an indefinite period, 1 month’s notice is required for the first year, two months for the second year and three months for the third.

What do The Commercial Agency (Council Directive) Regulations 1993 say about compensation and indemnities for termination of agreements?

In the first instance, it must be determined whether the agent is entitled to be compensated or indemnified.

An agent is entitled to compensation where the termination of the agreement has caused damage to the agent.  An agent suffers damage where:

• He does not receive commission “which proper performance of the agency contract would have procured for him whilst providing his principal with substantial benefits linked to activities of the commercial agent”.
• He has not been given the chance to receive any costs incurred as a result of performing the role agreed to in the agency agreement and authorized by the principal.

An agent is entitled to be indemnified where the he has brought in a substantial amount of new business or increased revenues from existing customers.  The amount of indemnity the agent is entitled to receive cannot exceed more than a year’s average remuneration, the average being calculated over the period of the contract or over the past five years.

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