Generally on termination of a commercial agency agreement the main area of exposure for a principal will be post-termination compensation or an indemnity payment. But such exposure can be avoided or at least reduced in some situations.
In contrast, the starting point under the Commercial Agents Regulations is that no matter how the agency has come to an end an agent has an entitlement to:
- unpaid commission; and
- post-termination commission
Unpaid commission, in particular, if not paid can hang like an albatross around the neck of a principal with an agent entitled to punitive interest for each day that it remains outstanding. Without a genuine claim against the agent that can be set off against such commission, the principal is trading the pressure of non-payment against expensive interest. Agents can be understandably territorial about commission as it directly reflects the work that they have expended and, therefore, are unlikely to let the claim go.
A principal can also find the basis for post-termination commission frustrating, especially if the agent has been terminated for breaches relating to performance. Following termination the principal may have recruited a sales representative for the territory or be using another agent. As a result a requirement to pay the terminated agent for the orders that the principal considers he has generated or for which he has already paid another agent, is likely to grate.
The entitlement to post-termination commission is heavily dependent on the facts.
Orders must be “mainly attributable” to the work of the agent. There is little actual analysis in the case law on what this means but the wording suggests that the agent will have to show that he did something identifiable and significant in a reasonable period before the termination that was a factor in the order being placed within a reasonable period after termination. Simply saying that it was his customer and he had managed the account for a number of years previously, is unlikely to approach the mainly attributable mark.
But this all involves time, effort, debate and most importantly cost. A better way is to include in the agency agreement provisions which exclude these payments.
The case law indicates that exclusion is possible. Unsurprisingly lawyers acting for agents disagree. What is the position is that where in the Regulations it is not possible to exclude provisions; it says so and says that such exclusions are void. The absence of these types of bars in relation to unpaid and post-termination commission is telling and a principal will have only itself to blame if it fails to narrow the field of play.
Entitled no matter what – Part 2 will be in the next issue of agentlaw news