Summary of Commercial Agency Regulations

by Reed Smith

[author: Sakil A. Suleman]


The Commercial Agents (Council Directive) Regulations 1993 (the ‘Regulations’) are the UK’s implementation of a European directive (EC Directive 86/653). They came into force on 1 January 1994 and govern the relationship between a certain type of "commercial agent" and principal. The terms of the Regulations are implied into all relevant commercial agency arrangements, whether written, oral formal or informal. In many respects, the Regulations represent a substantial change to the English law of agency, in the main providing certain protections for the agent.

Some of the protections can be excluded by express contractual provisions and it is important that agency agreements are properly drafted from both the agent’s and the principal’s perspective to take into account the impact of the Regulations.

Who is a "commercial agent"

The Regulations do not apply to all agents. They apply to anyone who is "self-employed" and who has a "continuing" authority to negotiate and/or conclude sales or purchases of goods on behalf of a principal.

Despite reference to the agent being "self employed", the agent does not have to be a natural person - the Regulations also apply to companies and partnerships. However, the Regulations only apply to "goods" and not services. The legislation provides no further guidance on how the distinction between goods and services is to be made. Clearly there will be many grey areas which will be left to the courts to determine.

The Regulations do not apply to employees, individual partners, liquidators or unpaid agents. More importantly, they do not affect those whose activities as commercial agents are considered "secondary" to their main activity. Again there is no clear description of what constitutes secondary activity, but the Regulations include a schedule of indicators which the English courts have found very difficult to interpret.


The amount of remuneration of the Agent can be agreed between the parties, but in the absence of agreement, the agent shall be entitled to "customary" or "reasonable" remuneration.

If agreed remuneration includes commission, then the amount of commission shall be based on the transactions concluded as a result of the agent’s actions, or in the territory where the agent has an exclusive geographic area or group of customers.

Under certain circumstances, the agent is also entitled to commission on transactions concluded after the agency contract has been terminated. This will apply to pipeline orders that are mainly attributable to the agent’s efforts during the term of the agreement and which are entered into within a reasonable period after the contract terminated.


The Regulations also govern the termination of agency contracts, which has been one of the most controversial aspects of the Regulations.

Where an agency contract is entered into for an indefinite period, it will be possible it to be terminated by either party giving notice to the other, provided that the period of notice is at least one month for the first year of the contract, two months for the second year of the contract and three months for the third and subsequent years. Although a longer notice period can be agreed, a principal may not have a shorter notice period than the agent. Any attempted waiver of this right will be void.

Where any agency contract is for a fixed period but continues to be performed by both parties following the expiry of the fixed period, it will be deemed to be converted into a contract for an indefinite period.

Termination payment – Indemnity or Compensation

On termination or expiry of the agency agreement, the agent is entitled to a termination payment being either an "indemnity" or "compensation" payment. The European directive gave member states the option to choose one of these options, but the UK decided to include both options. The payment under each option is calculated differently. If the parties want the indemnity option to apply, they must state this in the contract, otherwise the default option will be a compensation payment. The termination payment is mandatory and will apply in most scenarios other than limited circumstances, such as where the principal has terminated the agency agreement due to the agent’s repudiatory breach.


The indemnity payment will be calculated based on the business the agent has built up (i.e. if and to the extent that the agent brought the principal new customers or has significantly increased the volume of business with existing customers). The courts will also take into account other equitable factors in deciding upon the payment amount. The indemnity payment is capped at a maximum of one year’s commission, calculated based on the agent’s average annual remuneration over the preceding five years or the period of the agency agreement if less than five years. The indemnity payment is separate from and in addition to any damages the agent may be entitled to.


This provides for the agent to be compensated for damage suffered as a result of termination. The purpose is to compensate the agent for the loss it will suffer as a result of the end of its relationship with the principal. The English courts have confirmed that the compensation payment should reflect the value or goodwill of the business at the date of termination. There is no maximum cap within the Regulations for a compensation payment.


It is not possible to completely exclude the application of the Regulations if on its facts the Regulations apply to an arrangement. However, it is possible to exclude certain aspects and minimize the effect of the Regulations (in particular with regard to principals) or to clarify and bolster some of the rights conferred by the Regulations (as far as the agent is concerned).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Reed Smith | Attorney Advertising

Written by:

Reed Smith

Reed Smith on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.