Listen – It’s The Law – December 2010
Q. My main principal terminated my agency on 30 November 2010, providing me in the process with three months notice. The agency is therefore due to terminate on 28 February 2011, and I fully intend thereafter bringing a claim for compensation (as my earnings from this agency have been particularly good, and there were no grounds to have terminated the contract on account of any relevant default on my part). My question to you is this:- Although the first two months of the calendar year are traditionally the busiest time in my industry, with customers viewing products and looking to place orders from April onwards, I am of the opinion that there is very little point in my inputting my usual effort in the New Year and during the remainder of the notice period, as (a) my agency has been terminated anyway, and (b) I am not going to see the benefits of my efforts (given that, as I say, the agency will have terminated by that time when customers place orders). What is your advice, please?
I would make the following various points, in answer to your question:-
First of all, following a principal terminating an agent’s agency on proper notice and in circumstances where the agent hasn’t done anything wrong in terms of having not appropriately fulfilled his obligations (and any which misdemeanours would otherwise have justified the principal having terminated without having to have given
proper notice - i.e.:- “forthwith”), if the agent subsequently then does
(i.e.:- during the actual notice period itself) anything which is tantamount to a sufficiently serious (or, potentially, any) breach of his
obligations towards the principal, the principal may be able to then terminate the agency again, and therefore for a second time (and thus during the notice period in respect to the initial termination), and may thereby be entitled in respect to that second termination not to have to afford the agent any notice (i.e.:- because the agent had breached his contractual obligations in the way which I have described), and so that the agency would no longer end at the conclusion of the original notice period, but instead straightaway.
Secondly, and following on from the above first point, you need to be aware that wherever an agency is justifiably terminated “forthwith”,
the agent would likely then have forfeited (i.e.:- lost all of) his rights to anything at all by way of compensation/an indemnity, and this is the point where I must put to you that, and in the clearest terms possible, if you did decide (in making a very bad decision) not to
properly fulfill your obligations (in for example the way that you have described in your question) that your principal may it seems to me be perfectly entitled to then terminate your agency forthwith, thus creating a situation whereby your having previously been looking at the potential to being able to make a very decent claim to compensation/an indemnity upon termination, you would at the very least then be entitled to absolutely nothing whatsoever instead (i.e.:- if your principal had justifiable grounds to have terminated your agency forthwith), and, moreover, you would potentially be exposed to the additional risk of your principal being able to sue you in respect to the business and profit it had lost on the sales which you didn’t pursue,
when you ought to have been doing that.
My advice therefore is that you should most definitely NOT act in the way in which you suggest that you intend, as per your question.
Finally, and incidentally, I anyway don’t agree with you that it
wouldn’t be worth your while your pursuing sales during the notice period - i.e.:- even if those sales only transpired following termination of the agency, and assuming that you don’t have any written
agreement with the principal in this instance which incorporates a clause which effectively excludes the application of Regulation 8, you would anyway potentially be entitled to post termination pipeline transaction commissions, in any event.
Q. I understand that I am within my statutory rights to inspect my principal’s sales books and records - is this correct, and would you
advise that I should do this say once a quarter or something like that, and so as to enable me to double check that I am being paid correctly as regards all commissions which are due to me?
No, I don’t advise that you do what you suggest.
The position as far as I am concerned is, as follows:-
Whereas it is of course correct that the Regulations do provide agents with this right to be able, in appropriate circumstances, to inspect their principals’ sales books and records, it is my view that that right should only be considered to be used where there are clear grounds to be concerned that payments to the agent are not being made as they ought to be, or if there is some other obvious potential problem. I think to otherwise invoke what, in truth, is an invasive process is likely ordinarily unnecessary, and may undermine the basis of trust and goodwill which will otherwise exist between you and your principal.
Obviously, when the agency is at an end and you are perhaps pursuing a claim for compensation/an indemnity or you by that stage have some issues which suggest that you have not been paid all commission due, then by all means you should pursue your rights of inspection, and it is overall undoubtedly a very important and useful tool to have.
Q. I have several agencies, but don’t have any written agreements in respect to any of them. Should I be concerned, and what should I do to remedy this situation?
A. Any lawyer would ordinarily advise you as appropriate that getting matters which are agreed then recorded in writing is business common sense, for a variety of (pretty obvious) reasons. Recording in writing what you would recognize as being a formal contract is no different.
The above said, the scenario as regards principals and commercial agents is a little different in certain respects, and that is on account of at least the following reasons:-
Firstly, many of the most important facets of the principal/agent relationship are mandatory and are set out in the Commercial Agents (Council Directive) Regulations 1993, and so that, to that extent, the Regulations (which, very obviously, are already written down) form something of the contract in every agency relationship, in any event.
Secondly, many of those commercial aspects of the relationship as between the principal and its agent (and which are not based on any
relevant section of the Regulations) will be decipherable from an examination of the course of dealings as between the parties, or (so called) “custom and practice”.
Thirdly, where aspects of the Regulations are not mandatory (and thus
can be varied by agreement between the parties), those aspects are often sought to be varied in a way which is not at all beneficial from the agent’s point of view, and so that (and whereas of course a written record can in principle also be of benefit to the agent, depending on what it states) an agent proactively requesting a written agreement can ironically lead to a situation where the principal then goes away and subsequently returns with a proposal to vary the agent’s terms (on the basis set out in the proposed agreement document), and (moreover) to vary in a way which is very much against the agent’s interests
(although, that said, the agent would not ordinarily at all then be bound to have to agree to the relevant proposal, of course, and certainly shouldn’t ever agree, without having taken proper legal
advice). [PS:- Remember that an agent shouldn’t ever do nothing in respect to a contract proposal which he doesn’t agree to - he should
instead positively, and in appropriate terms, promptly put in writing to the principal that (and amongst other things which would need to be stated) he doesn’t agree to the terms of the proposal].
Finally, agents are often concerned that if they don’t have a written agreement that they don’t therefore have any contract, but (in my experience) that is almost always incorrect, and (indeed) most agents I have successfully acted for over the past fifteen years haven’t had a
Q. When do I need to inform my principal that I am making a claim for compensation? How should I inform him, exactly?
A. The Regulations (Regulation 17(9) in fact) provide that within 12 (twelve) months from the date when your agency terminates you need (i.e.:- have to) to have notified your principal that you intend pursuing a claim for (as appropriate) compensation or an indemnity, and that if you fail to take that step within that specific timescale, you would then lose your right to make any such claim.
Clearly, it goes without saying that the first thing which is essential to be aware of therefore is the timing issue, and you should urgently seek our further advice if you are unclear about that as, on occasions, there can be a degree of confusion as to what is deemed as being the actual termination date.
The second aspect of your question asks about how you should go
about notifying of your intention to make a claim, and whereas (for example) a verbal notification may potentially very well suffice in certain scenarios (and depending on what exactly was said, to whom, and when), it is clearly ordinarily immeasurably far better that the notification is made in writing, and we can provide you with a very clear wording, which puts the issue beyond any doubt. There are also several other fundamentally important issues to be borne in mind when considering how and when to notify your principal of your intention to make a claim for (as appropriate) compensation or an indemnity, and we therefore strongly urge that, in good time, you take our advice first, and so as to make sure that the steps which you take are the correct ones.
Q. An agency which I have is due to terminate on 31 January 2011, and this is an agency where I have been earning approximately ?40,000 (forty thousand pounds) per year. I last week received an e-mail from the Managing Director of this company, offering me ?10,000 (ten thousand pounds), on the basis that that was to compensate me for the loss of the agency, and was being put to me now, to avoid any difficulties both during the remainder of the notice period, and at the end of the agency, and moreover was proposed to be in full and final settlement of all aspects of any claims which I may have, as a result of my agency terminating. The e-mail also says that, as soon as I accept, the sum would be paid within 5 working days of such acceptance - what is your advice, please?
A. My advice is, as follows:-
I don’t know from the information which you have set out as to
whether or not you have a written agreement in respect to this particular agency, and whether therefore (depending on what might be included as a term in any such written contract) you are in principle
entitled to compensation or (instead to) an indemnity, upon termination - however, whichever one of those two in principle entitlements you may potentially have, and in circumstances where you were earning the sums which you have set out in your question, I very much doubt that, on the face of it, an offer of just ?10,000 (particularly bearing in mind (but not only that) you will potentially have, upon termination of your agency, rights to other entitlements, such as potentially to pipeline transaction commission) can be in any way realistic (i.e.:- appears very much too low).
Following on from the above, the first point to make to you is that Regulation 19 makes clear that where, before the agency in question
actually ends, the principal and the agent strike a deal as to how much compensation or (as appropriate:-) an indemnity the agent will recover following termination, and where that relevant amount which is agreed is less than the amount which the agent would otherwise have been entitled to (i.e.:- had he [the agent] not, prior to the agency having terminated, struck this deal agreeing to be paid a lesser amount than would otherwise have been his entitlement pursuant to the law), then that deal struck can potentially be overturned as being invalid, or otherwise that the amount already paid to the agent might be viewed as merely being on account of his proper and thus further entitlements.
Again, following on from the above, it will or should be clear that this is all about timing in that (and by way of the starkest of contrasts) if an agent strikes a “bad” deal with his principal [but strikes that deal]
following termination of his agency, then, in that scenario, there would be no parallel statutory provision enabling the agent to reverse out of what had thereby been agreed, and it would not therefore be open to challenge, on that basis.
In now answering the question as set out, I think that you should (a) first of all take advice as regards the overall situation (i.e.:- and not just isolated to the very important solitary issue which you have raised - e.g.:- you will need advice as to how to notify your principal of your intention to make a claim, and when to do that, and you will thereafter need advice about your overall claim, in various important ways, including as to how to react to a full and final settlement proposal, which is made at any point in time), and (b) allow your principal just to set out to you whatever it has in its mind to put to you as a proposal,
as long as you don’t agree to anything. In other words, even though I have explained how Regulation 19 can potentially protect agents, as to whether or not it bites in any particular situation depends on all of the relevant circumstances, and it is anyway far better (and for very obvious reasons) that you don’t at any stage (i.e.:- whether before or
after an agency terminates) agree to anything, without first having taken appropriate legal advice.
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Please ensure that you obtain legal advice before acting in reliance upon anything in this article, particularly since each individual’s
circumstances may necessitate a unique approach, and also on account of the fact that the law may of course at any time change. Furthermore, and because of editing restraints, please be very clear that the answers given in this column may not cover or otherwise refer to all possible angles, relevant information or points of law and so that all or any information which is given above needs in every instance to be referred to a legal adviser for clarification, before being relied upon.