Brexit: the end of agency protection?

The Battle of Bannockburn was a landmark victory for the Scots in the First War of Scottish Independence. Fast forward 702 years, and the same date (23 June) saw the majority of Scottish voters opt to remain in the EU, rather than choose independence. Across the border, in England, the majority chose otherwise. In total, the Leave campaign walked away with 52% of the votes cast, triggering the much discussed Brexit negotiations and permutations.

There is much uncertainty surrounding Brexit, but one thing is definite; businesses north and south of the border are already beginning to feel the effects as exchange rates plummet, the Stock Market soars, unemployment figures fall, interest rates creep downwards and the Bank of England plans to increase its cash injection into the UK economy to more than £430 billion.

While there is much in the media about how various industry sectors will be affected, I have read very little on how it will affect a small yet vital area of UK business: the sales agency sector.

Specifically, I’m talking about commercial agents – those who are retained by their principals to negotiate and conclude contracts for the sale of goods, which has recently been extended to cover many forms of software.

The Commercial Agents (Council Directive) Regulations came into force in the UK in 1998 as a result of pressure from French and German agents. Since then, they have divided the industry; loved by agents for the additional protection they are afforded, but despised by principals for the very same reason.

By way of just one example, upon termination or expiry of an agency contract, even an unwritten or fixed-term contract, the principal can be obliged to pay the agent compensation, often running into tens of thousands of pounds. Incredibly, the obligation to pay can exist even where the contract was terminated by virtue of the agent’s misconduct or wrongdoing, or where the agent is too old, ill or otherwise unable to perform his or her duties.

This has always been a somewhat alien concept in the UK. We are used to a party having to pay compensation when it breaches a contractual term, or does something wrong. But principals are often required to pay compensation even when they have acted entirely appropriately and in accordance with the contract. To a UK business, this is bizarre. To a French or German business, this is perfectly logical.

The UK’s exit from the EU will not stop the Regulations applying. While they are derived from EU law, the Regulations are actually a piece of UK legislation, and therefore the Government will need to pro-actively repeal the Regulations if they are inclined to do so.

But will they?

It’s safe to assume that the Regulations are not high on the Government’s list of priorities at the moment. And even if the matter was given due parliamentary consideration, there’s no guarantee that the Government would support principals by repealing the Regulations... they could just as easily support agents by retaining them.

Would you be happy receiving a parking fine if you had parked neatly within the marked lines?

Would you be happy to give your next-door neighbour some money if they damaged the boundary fence?

No, of course not.

I fear for the protection that agents currently benefit from – whilst agents have got used to the Regulations over the past 18 years, there is no getting away from the fact that the Regulations are unique in UK law insofar as requiring an innocent party (the principal that has done nothing wrong) to compensate the agent. There are strong arguments for the UK to ditch the Franco-Germanic model just as soon as it’s safe to do so, and revert to the good old tried-and-tested English method of paying compensation when you’ve done something wrong.

Commercial agency may not be the biggest sector in the UK but, for those working in the industry, that doesn’t mean it’s not important.

Undoubtedly the future will get clearer as we approach ‘EU independence day’ but, for agents and principals, it may be some time after that before we get a transparent picture of what the future holds.

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.