27 January 2017 by

Protecting commercial sales agent income post-Brexit

Politicians will soon be tasked with deciding which EU laws and regulations that currently govern our lives will stay in place in the UK post-Brexit.

One group that could be greatly impacted by the removal of certain EU-derived laws are salesmen or, specifically, commercial sales agents.

In basic terms a commercial sales agent is a self-employed salesman or company which does the following:

  • Finds customers for the ‘principal’ (e.g. a manufacturer);
  • Agrees customer orders in the principal’s name; and
  • Earns a commission on those orders

In 1993 the UK adopted the Commercial Agents (Council Directive) Regulations that specifically protected the sales agent. The EU’s reasoning behind these regulations is best explained using the example of a manufacturer based in the US wanting to break into the UK market. The manufacturer might decide to do this using a UK-based sales agent that will have good local knowledge and contacts.

The EU decided that, while the US manufacturer might be making a great product, the UK-based sales agent was finding the customers and generating the reputation for the business in the UK. In recognition of this dual effort, the EU put laws in place that stated that when the relationship between the manufacturer and the sales agent came to an end (even if it just ran its natural course), the manufacturer would have to make a payment to the sales agent for the contribution it has made to this growth of the business reputation.

These payments which the principals are liable to pay to the sales agent can be substantial, sometimes running into six-figure sums.

Prior to 1993, UK law did not provide this type of protection to sales agents. Sales agents often found themselves in situations where the manufacturer would contract with the sales agent for perhaps 2 years and, when that 2 year contract finished, the US manufacturer would cut them out of the process by not renewing the contract in order to stop paying commission and sell to the customers directly. UK law did not intervene in this practice.

Whether the UK retains, amends or rejects these EU-derived laws that currently protect agents will be a key concern for all sales agents and principals alike.

If you are a sales agent, principal, or know someone who is, now is the time for both parties to review their contracts and ensure they are prepared for the possibility that this legal protection will not be in place in its current form in 2 years’ time. Bolt Burdon is able to provide this service of reviewing and advising on existing contracts (and potential new contracts).

If you have any questions or would like to discuss any of the issues discussed in this article please contact Nicola McQuillan in our Commercial Litigation team on 0207 288 4749 or at nicolamcquillan@boltburdon.co.uk.

You can also contact one of our other solicitors in the Dispute Resolution team here.

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