Legal briefing | 24 May 2024 |

Are EU-derived rights for sales agents in the UK under threat?

As part of its attempt to reduce the amount of EU derived law in the UK, the Government has launched a consultation on whether to repeal the Commercial Agents Regulations. Among other things, these Regulations enable certain sales agents to claim substantial sums from the business that they act for when the agency comes to an end. Whilst agents may be concerned about the loss of their rights, principals are more likely to welcome the move. But will the upcoming UK election mean that the Regulations stay on the statute book?

What do the Commercial Agents Regulations (CARs) cover?

The CARs are derived from an EU directive and give commercial agents a number of potentially valuable rights and protections in relation to their contracts with principals. Some provisions of the CARs take precedence over independently negotiated contractual terms and this has sometimes increased the scope for potential disputes.

What is a commercial agent?

Commercial agents are defined in the CARs as a self-employed intermediary who has continuing authority to negotiate and/or conclude contracts for the sale or purchase of goods on behalf of the principal. Importantly, the definition of commercial agent only covers agents contracting for the supply of goods, which includes software (see this briefing), but not services. An example of a typical commercial agent would be a business which is engaged by a non-UK manufacturer to identify buyers for its products in the UK. Such manufacturers will typically engage commercial agents where they do not have the relevant local knowledge or lack the resources to carry out their own marketing in the UK.

Finally, note that the legislation also applies to purchasing agents for goods (although sales agents are probably the most common type of agency covered by the CARs).

What rights and protections do the CARs give to commercial agents?

The CARs confer several potentially valuable rights/protections on commercial agents, including:

The right, in some circumstances, to post-termination payments. These are designed to compensate the agent for the goodwill they have built up for the principal in the territory over the period of the agency (e.g. by finding new customers).
Protection against harsh or vague contractual terms relating to the agent's commission.
Mandatory minimum notice periods
Protection against lengthy post-termination non-compete obligations.

What is the UK Government proposing to do?

The Government argues that the CARs do not reflect the UK's general approach to business to business relations, which is to allow businesses to agree their own contractual terms (as opposed to business to consumer contracts, which are subject to more regulation). It therefore proposes to repeal the CARs and prevent the creation of any new commercial agents going forward. This repeal would impact future contracts that are entered into but those already operating under the CARs would continue to do so.

If implemented, what will the impact of the proposal be?

Repeal of the CARs may well prove to be beneficial for principals as it allows for greater freedom when negotiating contracts and will relieve them of potentially significant liabilities to the agent, particularly on termination. That said, a case can be made for continuing with the CARs on the basis that they make being an agent a more attractive proposition. Having a significant pool of experienced sale agents arguably makes it easier for principals to enter the UK market; ultimately, this can be expected to lead to an increase in competition and a reduction in prices of the relevant products, which benefits the whole UK economy. However, it's unclear whether that "theory of benefit" is borne out by the evidence.

If the proposal goes ahead, we may see existing agents looking to increase their fees or commission levels to compensate for the loss of rights under the regulation. However, much depends on their bargaining power vis-a-vis principals; in many cases, the principal is the larger business, often by some margin, and in these cases, agents are unlikely to be able to negotiate contractual rights which make up for loss of their statutory rights under the CARs.

What about the UK election?

Following the UK election scheduled for 4 July 2024, a new Government could decide that it has other priorities and simply abandon the consultation. This would be a surprising outcome if the current Government were to be re-elected, but it is possible if – as the opinion polls suggest – there is a change of governing party in the UK. That said, the CARs can be removed or amended fairly easily using the relatively broad powers in the Retained EU Law Act 2023 and would not necessarily take up significant amounts of Parliamentary time. Another possibility is that an incoming Labour Government could decide to continue with the consultation, but rather than simply repealing the CARs, it could amend them so that the additional rights and protections only apply in favour of agents below a certain size. This would be on the basis that larger agency businesses can look after themselves and do not require any "helping hand" from legislation.

The EEA position

Finally, a reminder that even if the CARs are repealed in the UK, national legislation implementing the relevant EU Directive will continue to apply across the EEA – and will need to be taken into account when appointing agents for territories in the EEA.

How we can help

We have considerable experience of advising on agency agreements which fall within the scope of the Commercial Agents Regulations in the UK and equivalent legislation in EEA countries. Our advice is always pragmatic and tailored to clients' needs. We are ranked as a Tier 1/Band 1 practice for Commercial Contracts in both the Legal 500 and Chambers UK Guides.

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