This article was written for and first featured in IT Law Today
The hullabaloo surrounding the abolition of default retirement age for employees has obscured a significant issue for companies with commercial agents.
The big issue
Unless there is a company pension scheme, employees are on their own when they retire – irrespective of their retirement age.
Not so agents. The Commercial Agents Regulations provide that it is open to an agent to terminate his agency agreement and claim statutory compensation (or indemnity) if by virtue of his age (or, indeed, illness or infirmity) he cannot reasonably be required to continue his activities as an agent.
The application of the Regulations
So do the Regulations apply to your agents? The Regulations define a commercial agent as a self-employed intermediary, having continuing authority to negotiate the sale or purchase of goods on behalf of a principal.
But the Regulations do not define “goods”. Nor does the EU Directive (on which the Regulations are based) gives any guidance. Nor is help really provided by the guidance note issued at the time the Regulations were made by the Department of Trade & Industry (now BIS) or by a European Commission report into the operation of the Directive.
As a result, it is generally accepted that “goods” includes software where the software is provided by CD-Rom. In contrast, software downloaded from the internet is unlikely to be “goods”.
The issue of reasonableness
But what is “reasonable”? Again, neither the Regulations nor the Directive give any guidance.
On the face of it, there should be flexibility. What is reasonable for an agent in one type of business might well be different for an agent in an another. Take for example a business selling clothes to teenagers. It would be surprising if an agent selling into that market did not have empathy for the target consumers. But, in this situation, at what age would such an agent lose that empathy?
A court decision
To date, we have very little guidance from the courts. The only published decision was given in 2004 in a case concerning an agent selling “mother of the bride and special occasionwear”. Whilst far removed from IT and software, the decision is of application to all companies with commercial agents.
It was pointed out in court that the age rage of the target consumers was over 45 with no upper limit. The agent, however, reached 65, decided to retire, and claim compensation under the Regulations.
It was argued at the trial that given the target market in this case, there was every good reason why someone of the agent’s age should be an “excellent and productive agent” beyond the age of 65. In other words, the agent should not be able to claim that by virtue of his age, he could not reasonably be required to continue his activities under the agency agreement.
Against this, the agent could only argue that having worked in the fashion industry for over 40 years, he felt that at the age of 65, it was entirely reasonable for him to discontinue his activity as an agent.
This argument resonated with the judge. He said that age alone, like an illness or infirmity, “is a trigger for the application of reasonableness”.
The judge decided that if the agent could show that the “age” is a reasonable retirement age, he had nothing further to prove.
This obviously left open the question of what is a reasonable age. The judge answered this in a circular fashion by reference to the language of the Regulations. He decided that whilst there might be difficult circumstances in different cases, the agent in this case could chose to retire at 65, as it was “embedded as a retirement milestone”.
A milestone or a millstone?
When a milestone is uprooted from the side of the road, the way forward is uncertain.
With the abolition of default retirement age, it would be a brave judge who chose the easy way out of looking to what had been “embedded as a milestone”.
As such, the way is now open for principals to challenge agents if they should decide to rely upon the 2004 judgment in seeking to retire at 65 and claim compensation (or indemnity).
But, as nothing is ever simple, it is equally open to agents to ignore that court decision and claim that it is not reasonable for them to continue to act as agents beyond an earlier age.
For many agents this will be an important consideration. If their principals’ businesses are struggling, query the value of their own agencies when it comes to calculating statutory compensation. The stagnating or declining fortunes of principals may also impact on the amount payable.
Such considerations may well herald a stampede for the exit, at which point the other claims which may be made by an agent under the Regulations will come into play. With reference to this, the well-advised agent will look to claim commission on orders which reach the principal for a reasonable time following termination of the agency as a result of the agent’s activities undertaken before termination. He will also consider claiming commission on orders unfulfilled by the principal where the reason for non-fulfilment is attributable to the principal and not to the customer. The fact that in such situations the principal has not been paid does not justify the non-payment of commission to the agent!
Even better advised agents will look at the principal’s statutory obligation to act dutifully and in good faith. If, for example, it can be claimed by the agent that the principal failed to give the agent reasonable notice of a possible reduction in the volume of orders that the agent could otherwise have normally expected, a claim for damages by the agent can be made.
When these are added to the agent’s claims for compensation (or indemnity) and commission accrued but unpaid at the time of termination, many agents could well be singing:
“Will you still need me, will you still feed me, when I’m whatever age I choose?” (With apologies to Sir Paul McCartney).