Will You Ever solicitors

Swapping the Common Market for the European Union means more than pricing brie and wine in Euros and adopting Continental footballing techniques. Banning bent bananas, English sausages and chocolates is the tabloid storyline of the ever more prevalent melting pot of Europe - the fromage fondue of membership, if you like.

Like taking on European football managers, the innumerable directives are intended to "give a level playing field" in business. In the past, this may have been honoured more in the clich´┐Ż than the practice. However, for businesses using commercial agents, French and German laws are calling the shots.

The Regulations provide a mechanism under which the agent "sells" the goodwill he has built up for the principal during the agency. The idea is that it is not fair for the agent to create a market for the product so that a principal can take over a ready-made business buckshee by terminating the agency. The "price" is either an indemnity or compensation. Both these concepts are familiar in English law, so how do French and German law fit into the picture?

A commercial agent lives according to the regulations passed in the country in which he works not the country in which the principal is located (subject to terms of the agency contract). One manufacturer using agents in seven countries can find that he has to get to grips with seven different regimes. Some agents may find that their activities are governed by more than one set of rules if they cover territories in several countries. So, the English courts have decreed that, in order to make sense of the Regulations the German idea of indemnity and the French interpretation of compensation apply.

In real terms, how much will it cost to sack an agent?

  • An indemnity is 1 years commissions taking an average over the last 5 years
  • Compensation is two years commissions taking an average over the last 3 years.

"Can I get out of it?" you cry. The principal cannot contract out of the obligation to pay. The solution is partly in the sacking and partly in the activity.

To qualify:

  • the agency must be for goods, not services.
  • the agent must have authority to negotiate a sale
  • the agent must be paid for the agency activities
  • the agency activity must not be secondary to other activities
  • the business must the sale or purchase of goods of a particular kind
  • transactions must be negotiated and concluded on an individual basis
  • getting one sale is likely to lead to another of that kind of product with that customer

The agent must perform properly under the contract. If the principal terminates because of breach or even possibly under-achievement, he may lose his entitlement.

It is time for some spring-cleaning:

  • Review contracts -would you be better agreeing an indemnity instead of compensation. If the contract is silent, the agent gets compensation.
  • Agree performance targets with agents. Who wants to get rid of a successful agent and if he can't make it, you may not need to pay him on termination.
  • Review the activities of the agent.
  • Check how much selling you do from head office.
  • Would you fare better with distributors, to whom the Regulations do not yet apply?
  • Would you be better with an employed sales force?
  • Plan any terminations with care - and advice.

The Regulations need not be your nightmare, properly controlled and operated, they can be your ally to a successful sales operation.

Commercial Agents

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