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In sickness and in wealth

19 Jul 05

The Commercial Agents Regulations address what happens when an agent dies, retires or is prevented from working due to illness or injury.  Yet whilst the Regulations deal briefly with each of these issues, they leave a number of important questions unanswered.  The situation is not helped by the fact that many principals and agents are unaware that the Regulations deal with an agent’s death, retirement, illness or injury.  As such, there are no reported cases which have reached trial to date which interpret and flesh out the Regulations in these areas.

What happens on an agent’s death?

The situation is relatively straightforward if the agent is an individual.   An agency agreement with an individual is a contract for personal services.  Such contracts are subject to an implied condition that the person performing the services is alive.  As a result of the operation of the common law doctrine of frustration, on that person’s death the contract will come to an end automatically.

The situation may be different if the agent is a partnership or company.  In the absence of partnership agreement, a partnership is automatically dissolved on the death of a partner.  As such, frustration occurs on the death of a partner.  However, if the partnership agreement provides for the  continuance of the partnership, then the surviving partner or partners may be required to carry on the agency agreement regardless.

Turning to companies, again the agency continues despite the death of one of its shareholders or officers.  An exception to this rule might apply to companies which are effectively “one man bands” operating as agents.  In this situation, an agency agreement is likely to be regarded as having been frustrated upon the death of the sole director and shareholder of the agent company.

Does an agent’s death mean that no compensation is payable? 

The Regulations provide that the death of an agent does not prevent a principal being liable (albeit to the agent’s estate) for compensation as a result of the agency coming to an end.  It is worth noting that it is not possible for a principal to exclude or reduce an agent’s entitlement to compensation or indemnity on his death.  On the other hand, in an attempt to avoid liability on the death of a partner or officer, a principal could provide in the agency agreement with a partnership or company for the continuance of an agency after the death of a partner or officer.  However, this may prove unworkable,  for example in the case of one man bands.  Alternatively it may be undesirable where the agency depends on the continued involvement of one individual in the partnership or company. 

Does an agent have any rights on retirement?

The Regulations provide that an agent who retires on grounds of old age has a right to compensation on retirement.  This is subject to the proviso that the agent cannot reasonably be required to continue his activities as an agent in view of his age.  A principal cannot contract out of this entitlement under the Regulations.

Recently the first case to consider this issue came before the Central London County Court.  In Abbott v Condici and Rinku the agent gave notice to terminate his fashion agreement at the age of 65 having worked for over 40 years.  The difference between the parties was whether termination was justified on the ground of the agent’s age in consequence of which he cannot reasonably be required to continue his activities.

The defendants’ arguments were accepted as being plausible but were rejected.  In particular the court did not accept that it was necessary to closely examine the circumstances as opposed to more achievement of a particular age.

Instead the judge decided that age alone was to be the deciding factor as to whether there remained an entitlement to compensation or indemnity.  In doing so the judge did not apply the qualification of whether the agent could not reasonably be requested to continue his activities as an agent.

In the earlier Scots case of Frape v Emreco International Limited, decided in 2002.  In that case, the written agreement between the parties provided for the agency to come to an end on Mr Frape reaching 65.  Emreco confirmed that the agency had ended following Mr Frape’s 65th birthday and so Mr Frape made a claim for compensation under the Regulations.  However, the parties treated the agency as having simply expired. 

If a principal wishes to provide for an agent’s retirement at a certain age, as Emreco did, the principal should bear in mind that the UK is obliged to implement European legislation against age discrimination by 2006.  Accordingly, from 2006 the agent may have a claim against the principal for age discrimination as well as a claim under the Regulations.

What is the position if the agency is terminated as a result of injury or illness?

As with old age, the Regulations provide that an agent who retires on grounds of infirmity or illness in consequence of which cannot reasonably be required to continue his activities has a right to compensation on retirement.  Again, it is not possible for a principal to contract out of this entitlement.

Whilst, the Regulations refer to the agent terminating the agency, if a principal terminates the agency as a result of the agent’s illness or infirmity, then the agent would have a claim for compensation in any event. 

Discrimination claims

If a principal terminates the agency due to an agent’s infirmity or illness, he will not only be exposed to claims under the Regulations, but also possibly to claims under discrimination legislation.  The Disability Discrimination Act 1995 (DDA”) applies to “contract workers”, which may be wide enough to cover agents.  If the DDA applies, an agent will have a claim for unlimited damages against a principal who discriminates against him on grounds of his disability or fails to make reasonable adjustments in respect of his disability. 

If the agency comes to an end as a result of a pregnancy-related illness of the agent, then the principal may also face a claim under the Sex Discrimination Act 1975.

Should the issue of illness be addressed at all?

It is prudent to provide for what is to happen if the agent is absent due to illness or injury in the short term.  For example, the agency agreement could oblige the agent to give the principal notice and keep him informed.  The principal will also want to ensure that customers continue to be serviced during the agent’s absence.  This may be by enabling the principal to enter the agent’s territory or by obliging the agent to find a suitable replacement.  It should be borne in mind that the agent must either continue to receive commission or agree to receive reduced or even no commission during any period of absence.  A principal will be at risk of attack if he seeks to reduce the amounts payable to an agent during the period of absence without his consent.

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