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Commercial Agency

At Orpen Franks, we have significant experience in providing advice in relation to Commercial Agency. We advise both agents and principals on all aspects of Commercial Agency and we use our experience to provide practical high-quality legal solutions and pragmatic advice to our clients.

The litigation experts at Orpen Franks are happy to discuss your situation in order to assess your claim or to assist you in responding to a claim from a commercial agent.

Commercial Agents Legislation

The Commercial Agents Directive (Council Directive 86/653/EEC), implemented in Ireland with the Commercial Agents Regulations of 1994 and 1997, governs the relationship between a certain type of commercial agent and their principal and affords commercial agents a minimum level of protection.

Commercial agents will, particularly in long-standing commercial arrangements, have contributed to developing the goodwill of the principal’s business. When the principal business ends the relationship with their commercial agent, they are required, in effect, to compensate the agent for their interest in that goodwill.

General

Am I a commercial agent and why does it matter?

In order to qualify as a commercial agent, you must:

  • be self-employed;
  • have continuing authority to act on behalf of the other party; and
  • have authority to negotiate the sale and purchase of goods or negotiate and conclude such transactions for the principal.

Commercial agents are usually paid a commission on sales achieved, are not a party to the sales contract and are not a distributor.  It is important to determine if you are a “commercial agent” because if you are, you will benefit from the significant protection of The Commercial Agents (Council Directive) Regulations 1994 and 1997, with regard to a principal’s conduct and behaviour towards you and protection from being dismissed without due compensation.

What are the Commercial Agents (Council Directive 86/653/EEC) Regulations 1995 and 1997?

The Commercial Agents Directive (Council Directive 86/653/EEC), implemented in Ireland with the Commercial Agents Regulations of 1994 and 1997, govern the relationship between a certain type of commercial agent and their principal.

The Regulations cover the rights and obligations of both agents and principals, as well as providing commercial agents with a number of significant protections. The purpose of the Commercial Agents Regulations is to afford protections to the self-employed commercial agent (beyond whatever contractual arrangements exist) in recognition of the imbalance in power between them and the typically larger principal on whom the commercial agent’s livelihood may depend.

When and to whom do the Regulations apply?

The Regulations apply to all commercial agents in Ireland, where Irish law applies. Therefore, if you are a commercial agent in Ireland (an agent) or if you engage commercial agents in Ireland (a principal), the Regulations will apply to you. It is difficult to avoid the applications of the Regulations where a relationship of commercial agency exists.

What is the difference between being a commercial agent and a distributor?

A commercial agent will have the authority of his principal to negotiate sales or purchases in the principal’s name, so the commercial agent will not be a party to the sales contract with the customer.  Further, because the commercial agent contracts in the principal’s name, the commercial agent would not take possession or control of the principal’s goods and would not take part in the delivery of goods from the principal to the customer.  By comparison, a distributor would usually take possession of goods and then deal with re-selling or distributing them on to customers, usually by contracting in its own name.

What is the difference between a commercial agency relationship and a franchise?

In a franchise relationship, the franchisee contracts on its own behalf and in its own name but will often pay a percentage or proportion of its turnover to the franchisor.  This percentage or proportion is usually in exchange for the use of the franchisor’s name, goodwill or products, so is quite different to a commercial agency relationship.

What is the difference between being a sole, exclusive or non-exclusive agent?

A sole agency is when the principal is not able to appoint any other commercial agents to act on its behalf in a specified territory (where the sole agent is authorised to act) but the principal is able to seek customers and to negotiate sales directly for itself.

An exclusive agency is when the agent has the exclusive right to represent the principal in a territory and the principal is prohibited from trying to seek customers and to negotiate sales directly for itself.

A non-exclusive agency is when the principal is free to appoint other commercial agents in the same territory and also, seek customers and sales/transactions itself.

How do the Regulations affect me?

The Regulations are important to both principals and agents in confirming their respective rights and obligations and also providing for what should happen, in the event that the commercial agency relationship is terminated or otherwise comes to an end.  If you are an agent, you may have the right to bring a claim for compensation under the Regulations should the principal terminate your commercial agency.  Likewise, if you are a principal, you may be able to rely on certain provisions of the Regulations to either deflect or reduce your liability to a terminated or outgoing commercial agent.

What are the obligations of an agent?

Generally speaking, a commercial agent must look after the interests of his principal and act both dutifully and in good faith.  Specifically, the commercial agent must make proper efforts to negotiate and conclude transactions, must communicate all necessary information he has to his principal and must comply with any reasonable instruction given by his principal.  In addition, the agent must comply with the terms of the agency agreement in place with the principal, whether it be by way of written or verbal contract.

What are the obligations of a principal?

A principal must act both dutifully and in good faith in his relations with his commercial agent.  This includes providing the commercial agent with the necessary documentation concerning any goods, obtain whatever information is necessary for the agent to perform the agency agreement, inform the agent if a significantly lower than usual volume of transactions is expected and inform the agent of his acceptance or rejection of any transaction procured by the agent.  A principal must provide the agent with a statement of commission due to the agent and must pay the agent “reasonable remuneration”, in the absence of any agreement in relation to a specific level of remuneration.  In addition, the agent must comply with the terms of the agency agreement in place with the principal, whether it be by way of written or verbal contract.

Agency Agreement

Must I have a written agency agreement?

No, it is not a legal requirement to have a written agency agreement in place, although it is often the case that a written agency agreement clarifies the rights, duties and obligations of both agent and principal, which assists in determining the contractual relationship between them.  Both agent and principal have a right to receive from the other a signed written document setting out the terms of the agency contract, on request.  Often, however, it will be in an agent’s interests not to have a written agreement in place.

What if I don’t have a written agreement?

If there is no written agency agreement in place, the Regulations will apply as the fall-back position.  Relying solely on the Regulations can have advantages and disadvantages depending on whether you are agent or principal and also the circumstances of any dispute which might arise between you.  The Regulations tend to favour agents, hence why not having a written agreement is often preferable for an agent.

Is it better to have a written agreement or not to have one?

This very much depends on the circumstances of your individual relationship with your agent/principal.  If you are an agent, it may be advantageous to you not to have a written agreement so that you are not bound by sales targets and so that you may benefit from the payment of compensation on termination under Regulation 17.  While there are definite advantages in having a written agreement, if the written agreement is poor or is drafted without an understanding of the workings of the Regulations, it may not do its intended job and may fail to provide you with the protection which you were expecting it to.

Can I make my principal give me a written agreement?

Yes – under Regulation 13 you are entitled, on request, to receive a signed written document from your principal, which sets out the terms of your agency contract.

Can I make an agent sign up to a written agreement?

At the outset of an agency, the agency and principal are free to negotiate and sign up to a written agreement.  However, if a commercial agent has been acting for a principal for some time without having had a written agreement in place, the principal is not able to then compel the agent to sign up to a written agreement when the contractual relationship is already in existence, where the agent does not want to do so.

Can a written agreement exclude or contract out of the Regulations?

No, a written agreement cannot exclude or contract out of the Regulations but it is possible to limit the extent and effect of some of the Regulations.  We would recommend that you take legal advice on which of the Regulations may/may not be limited.

Can I change a written agreement once it has been signed?

This depends on the wording of the agreement and whether both parties agree that the terms of the agency relationship should be changed.  If this is the case, the original written agreement must be complied with in terms of any requirements for making amendments to the agreement between the parties.  If the written agreement does not provide for amendments, it will be necessary for all parties to the agreement to consent to the amendment and for a further document or addendum to the agreement, to be agreed and signed, in order for the amendment to legally take effect.

What if the agent/principal is in breach of the agreement?

If you are a principal and your commercial agent is in breach of the agreement, this may entitle you to terminate the agreement without the need to make certain post-termination payments to the commercial agent (if the breach is serious enough).  If you are an agent and the principal is in breach of the agreement, you may be able to take action to, for example, compel the principal to provide you with sales data and/or accept any repudiatory breach of the contract and bring the commercial agency to an end and retain your right to a termination payment.

What are the common issues with written agreements?

There are a number of common areas for disagreement when it comes to negotiating written agreements.  These include the imposition of sales targets on the agent, when either party is able to terminate the agency relationship, whether compensation under Regulation 17 is payable on termination, restrictions on the activities of the agent after termination and which country’s laws and courts should determine any dispute (where the agent and principal are based in different countries).

What should I look out for when negotiating an agency agreement?

As set out above, you may wish to seriously consider sales targets and also, whether compensation will be payable in the event that the agency is terminated.  An agent should also beware of any other onerous obligations.

What do I do if my principal wants to take my clients away from me?

When agents service large or repeat order customers, it is not unusual for principals to wish to take these customers “in-house” and remove the agent’s involvement, such that the principal no longer has to pay commissions to the agent for sales made to those customers.  You may, therefore, wish to resist any attempt by your principal to take customers in-house or to cease the payment of commissions to you in relation to sales made to those customers.  Alternatively, you may wish to negotiate a settlement with your principal which compensates you for the loss of future commissions which you would have received from future sales to those customers.

What do I do if my principal wants to reduce my territory?

It is highly likely that if your principal wishes to reduce your territory, your commissions will fall as a result.  Depending on the wording of any written agreement, it is not possible for a principal to vary the terms of an agency agreement without the agent’s consent and, therefore, if your principal does wish to reduce or change your territory, you may wish to negotiate a settlement to compensate you for the expected reduction in your future commissions.

Can my agreement be only for a fixed-term?

Yes – commercial agency agreements can be specified as being only for a fixed term.  However, the fact that a commercial agency is specified as being only of a fixed duration does not prevent the application of the Regulations and, therefore, post-termination payments under the Regulation may still be payable to the agent after the end of the fixed term.

Can I stop an agent from competing against me after the agreement has ended?

Generally, you would only be able to prevent an agent from competing against you if you have reasonable restrictions on such competitive activity within a written agency agreement.

Payment

What do I do if my principal won’t pay me?

You are able to demand sales information from your principal if you need that information to check the amount of commission due to you.  If you believe that you principal is not paying commissions due to you then you are able to take legal action.  You may also be able to terminate your agency and preserve the right to a termination payment.

How much commission should I be paid?

At the outset of the commercial agency relationship, agent and principal should agree the amount of commission to be paid.  Agent and principal can also agree to vary the amount of commission paid during the agency relationship, if desirable.

What if my principal goes out of business?

If your principal goes out of business, you may still be entitled to claim termination payments from the liquidator or administrator of your principal.  If this happens, we would strongly recommend that you get in touch with us straight away in order that we might advise as to how to proceed.

Termination

When is my principal entitled to terminate my agency?

Your principal might choose to terminate your commercial agency at any time, however, if it does so, it is likely to be liable to make post-termination payments to you under the Regulations and/or in accordance with any written agency agreement.

If your principal is able to establish that you are in repudiatory breach of the agency agreement (which means that you have committed a very serious breach of the agency agreement), it may be entitled to terminate the agency without any obligation to make post-termination payments to you and without having to provide you with a notice period under Regulation 15.  You would still, however, be entitled to be paid all commissions due and owing up to termination.

What is repudiatory breach?

There is little case law which assists in determining what is and what is not classed as a repudiatory breach in a commercial agency context.  In simple terms, a repudiatory breach is a very serious breach of the agency agreement which entitles the principal to treat the agency agreement as immediately at an end.  If you are in repudiatory breach, your principal is not obliged to make termination payments to you under the Regulations because of the seriousness of your breach of the agency agreement.  However, it is often difficult for your principal to prove that you are in repudiatory breach as you must have committed a very serious breach of the agency agreement – trivial or minor breaches will not be sufficient.

When can I terminate a poorly performing agent?

You are able to terminate a commercial agent at any time, provided you give the agent the necessary notice.  Termination may however, mean that you must make post-termination payments to the agent.  If you believe the agent is in repudiatory breach of the agency agreement then you may be able to terminate the agent without having to give notice or make post-termination payments.  We would recommend that you get in touch with us before you terminate, in order that we may advise on your potential liability to the agent.

What do I do if I want to terminate a contract with an agent?

You should carefully consider the terms of the agency agreement and if there is a written agreement in place, consider the terms of that written agreement.  It would be advisable for you to get in touch with us before you proceed to terminate, in order that we might advise on your potential liability.

What do I do if my agency is terminated?

We would recommend that you contact us in order that we may advise on whether or not we think the termination has been carried out as a result of a repudiatory breach on your part and in order that we may advise on your ability to bring a claim under the Regulations.

Should I be given notice of termination of my agency and, if so, how much?

If your principal is alleging that you are in repudiatory breach, it is not obliged to give you any notice of termination.  If your principal is not alleging repudiatory breach, the notice required to be given will be dependent on the length of the agency.  For any agency which has lasted for three years or more, you must be given three months’ notice of the termination of your agency.  If the agency has lasted for two years then you should be given two months’ notice and one year, one months’ notice etc.  However, if you have a written agency agreement in place which provides that you should be given a longer notice period than three months’, it is likely that this longer period would apply.

What if my principal makes it impossible for me to do my job?

If your principal makes it impossible for you to carry out your role as an agent, for example, by taking away samples required for you to do your job, it is possible that your principal may be in repudiatory breach of the agency agreement.  This breach might be capable of acceptance by you, which would bring the agency agreement immediately to an end and preserve your right to post-termination payments.  If you think your principal might be in repudiatory breach, you should contact us immediately in order that we may advise you.

What if my principal doesn’t give me as much notice as it should?

If you are provided with insufficient or no notice of the termination of your agency, you are likely to have a claim against your principal for a payment “in lieu of” the notice which should have been provided to you.  It is not possible to agree shorter notice periods than those provided in the Regulations and therefore, regardless of what your written agency agreement might say, the notice periods provided in Regulation 15 should be complied with.

What do I do if after termination, my principal won’t pay me what I am owed?

In this case, you are likely to have a claim against your principal under the Regulations for post-termination payments.  We would suggest that you get in touch with us in order that we may advise you in relation to your claim and its potential value.

Claims

How do I make a claim?

You should get in touch with us in order that we may advise you as to the correct procedure to be followed to set out your case.

When do I have to make a claim?

Under the Regulations, you are required to notify your principal of your intention to bring a claim under the Regulations within one year of the termination of your agency.

Do I have any other claims on termination and if so, what for?

It is possible that you may also have claims under Regulations 7, 8 and 15.
Regulation 7 provides that an agent should be paid all commissions due to him during the course of the agency.  If your principal has not paid you all commissions due to you up to termination, you would have a claim under Regulation 7.

Regulation 8 provides that you should be paid commissions on all sales made by your principal to your customers and/or in your territory, for a reasonable period after the termination of your agency.  This is often known as pipeline commission.

Regulation 15 – you may have a Regulation 15 claim if you have not been provided with sufficient notice of the termination of your agency.

Retirement/Death

What happens if I want to retire as a commercial agent – do I get any money?

If you retire as a commercial agent on the grounds of ill health or old age, you are still entitled to claim post-termination payments from your principal under the Regulations.  However, if you wish to retire as a commercial agent before the normal retirement age, you may not be able to make a claim under the Regulations.  We would recommend that you get in touch with us in order that we may advise you on this point.

What happens if I die – can my estate sue my principal?

Yes – if you die while acting as a commercial agent for your principal, your estate is able to make a claim against your principal for post-termination payments under the Regulations.

Can a principal make me retire?

Your principal will not be able to force you to retire without making post-termination payments to you, under the Regulations.

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