Commercial Agents: A Cuckoo in the Nest?

The Commercial Agents (Council Directive) Regulations 1993 (the Regulations) give significant protection to 'commercial agents'. A new case makes clear that sales representatives can be 'commercial agents' even if they work from the same premises as their principal, and even if they undertake some non-agency work.

Businesses need to look closely at any independent contractors they have working for them wholly or partially in a sales or marketing capacity, to establish whether any of them may fall within the definition of 'commercial agent'. This case makes it even more important to look at workers 'inside the nest' of the business, as well as those who work remotely.

What are the risks for principals who engage commercial agents?

If the Regulations apply, the major implication is that an agent will be entitled to claim a termination payment from the principal at the end of the relationship. This can amount to a substantial sum, and often takes principals by surprise. The liability to make a termination payment applies in most termination circumstances and cannot be contracted out of.

The Regulations also imply certain terms into agency contracts on a mandatory basis, such a minimum notice periods. Principals need to be aware of these implied terms to avoid agents bringing a breach of contract claim on top of the claim for a termination payment – a double whammy.

How do I spot a 'commercial agent'?

The Regulations define 'commercial agents' as self-employed intermediaries with continuing authority to negotiate, or negotiate and conclude, sales of products (not services) on behalf of its principal. Each of the requirements in bold must be satisfied, but the courts have tended to interpret the definition widely to err on the side of protecting those claiming to be 'commercial agents'.

The latest case arguably blurs the line between 'worker' and 'commercial agent' even further, making it increasingly difficult to spot personnel who are entitled to the protection of the Regulations.

ZAKO SPRL v Sanidel SA (ECJ, 21 Nov 2018)

Zako and Sanidel entered into a contract whereby Zako's manager was stationed at Sanidel's premises. The Zako manager was tasked with duties which included both the driving, negotiation and conclusion of sales, as well as unrelated tasks such as the drafting of plans and staff management.

Sanidel argued that the contract was not one of commercial agency but rather a contract for work, because:

  • Zako operated from Sanidel's premises; and
  • Zako performed duties which were not solely focused on the negotiation or conclusion of the sale of goods ('unrelated duties').

The court found that:

  • a person who operates from a principal's premises may still be considered a commercial agent, provided that the agent's use of the principal's facilities does not limit their ability to perform their duties independently; and
  • the performance of unrelated duties does not prevent the application of the Regulations to the commercial agency work, provided that the unrelated duties do not compromise the agent's independence and provided that the commercial agency work ranked as equal in importance.

Where to look for 'cuckoos'

Businesses need to look for potential 'cuckoos' (i.e. unidentified commercial agents) who work for them on a self-employed basis in a sales or marketing capacity:

  • anywhere within the EU;
  • whether working from the business' own premises or the agent's own premises; and
  • whether undertaking only agency activities covered by the Regulations, or a mixture of work.

Dealing with the risks

If you think you have identified a potential commercial agent 'in your nest', or are appointing a new representative who could fall within the definition of commercial agent, taking legal advice can help you manage the risks. You cannot contract out of the Regulations if they apply, but you can structure your arrangements to reduce the chance of the Regulations applying, or ensure you know how to minimise the value of claims from commercial agents under the Regulations.

Lucy Pringle, legal director at law firm Womble Bond Dickinson

Lucy Pringle, legal director at law firm Womble Bond Dickinson