Agency agreements - compensation for termination?

News  |   8 April 2010

As the practical effects of the recession continue to bite, many companies are reviewing and rationalising their agency and distribution networks. Some may have proved ineffective, some unprofitable.

We are seeing more and more cases where agency arrangements are being terminated. What we are also seeing (whether from a terminating company, or an unwanted agent) is a lack of knowledge of the Commercial Agents Regulations 1993 (the “Regulations”), notwithstanding that they have been around for some while. Broadly, the Regulations provide (amongst other things) for a minimum statutory compensation payment for the agent if the Agreement is terminated by the appointing company. This is unusual – a statutory minimum entitlement, irrespective of what two arms length contracting parties may have freely agreed.

There are a number of practical points to consider here. If you are setting up an agency network, make sure your Agreements comply with the Regulations and, importantly, the mechanism for the minimum compensation; consider whether you can limit the amount of compensation payable and build into your financial model the contingent liability; do not terminate without consideration of the Regulations – if you do, you may already have incurred significant liabilities; if you are an agent and your agreement is being terminated (even if validly) do not accept without question the financial consequences – ensure that you are being adequately compensated within the Regulations.

In short, the Regulations are much misunderstood and frequently overlooked. Do not assume they won’t apply to you. They may come back to haunt you. Take advice at the outset and then again before terminating. You may also be surprised at the kinds of termination that will trigger a compensation payment – valid termination of a rolling contract, death or retirement of an agent, or even termination for certain kinds of breach by the agent.

For more information contact Robert Goddard