The Commercial Agents Regulations provide that an agent will either be entitled to a compensation payment or an indemnity payment on termination of the agency agreement in most circumstances.
These alternative awards are calculated very differently. It is generally thought that the compensation system produces the higher payment for the agent. So how do principal and agent know which can be claimed by the agent?
The answer is that a terminated agent will be entitled to a compensation payment unless it has been agreed between principal and agent that an indemnity payment will instead be made on termination of the agency.
Many agents do not have written agency contracts with their principals. The absence of a written contract invariably suggests that principal and agent have not discussed and agreed on an indemnity payment. As such:
- the agent will be entitled to a compensation payment on termination of the agency, rather than an indemnity payment; and
- the principal risks having to pay more on termination of the agency than if a suitable written agency contract was in place.
Not having a written contract in place can have other disadvantages. Writing does not avoid argument as to what was agreed. But writing does reduce the scope of the argument.
It can sometimes be difficult to establish the precise terms of the agency. The principal may think that an agent agreed to provide a monthly report of his appointments, but unless the principal has something in writing stating that, or can point to the performance of the agent as showing that it was part of the agreement, the principal may run into difficulties in getting the agent to provide such reports. This can be an important consideration if the agent’s performance is not up to scratch – it is so much easier to put pressure on the agent to change if a written contract is in place.
For the agent clear written provisions as to commission entitlement can be worth their weight in gold – or at least in avoiding unnecessary disagreements as to the circumstances in which commission is payable.
All is not lost if the principal has agents already actin without written contracts. Agents may be persuaded to sign a written contract during the course of the agency. Sometimes agents will appoint one of their number as a spokesperson to liaise with the principal and take advice on behalf of the group. In such circumstances the principal can engage with the spokesperson and invite him to meet to discuss the need for a written contract.
Whatever the outcome, it is certainly worth attempting getting written contracts in place. Whilst principal and agent may have to compromise on some points, even a written contract which is a compromise is better than no written contract at all.