Common Law and EU Law
In England and Wales, the legal framework for all types of agency arrangements, including commercial agency relationships, is found at common law. At common law, parties have a broad freedom to decide the terms and conditions that define their relationship and obligations.
There was little regulation of commercial agency relationships before the introduction of the EU Council Directive 86/653/EEC on the Co-ordination of the Laws of the Member States Relating to Self-Employed Commercial Agents (“the Directive”), implemented through the Commercial Agents (Council Directive) Regulations 1993 (“the Regulations”). A main purpose of the Directive was to strengthen the position of the commercial agent in relation to the principal. The Regulations follow the wording of the Directive closely.
Within the wide common law framework, there are commercial agency agreements that are subject to the Regulations and commercial agency agreements that are not. Determining whether an agreement is within or outside the scope of the Regulations is important to identify what regulatory provisions might apply.
POST-BREXIT UPDATE: EU-derived legislation made under s.2(2) of the European Communities Act 1972 will continue to have effect in domestic law now that the UK has left the EU, pursuant to s.2 of the European Union (Withdrawal) Act 2018 (as amended by s.25 of the European Union (Withdrawal Agreement) Act 2020). As such, the Regulations continue to apply after the transition period expired on 31 December 2020, unless and until the UK Parliament decides to change or repeal this legislation.
Note, however, that the UK is no longer bound by CJEU decisions handed down after the expiry of the transition period, although the domestic courts may have regard to these decisions. Pre-expiry CJEU decisions continue to have force, but may be departed from by the higher courts in Great Britain.
The application of the Regulations
The Regulations give “commercial agents”, which are defined here more narrowly than at common law, stronger rights than those implied at common law.
The scope of the application of the Regulations is set out in Regulation 1(2). The Regulations apply to the relationship between commercial agents and their principals and primarily have territorial application: they govern the activities of commercial agents in England and Wales.
The primary rights afforded to agents under the Regulations are:
- rights to a minimum notice period for termination, and
- a right to compensation or indemnity on termination.
Parties are unable to contract out of the majority of the terms of the Regulations, and many can only be excluded if this operates in the agent’s favour. Some flexibility is permitted, in that Regulation 1(3) allows the parties to expressly agree that the agency agreement is to be governed by the laws of another Member State. The agent however, still benefits from the protection of the Directive by way of the implementing legislation in that Member State’s jurisdiction. Where the parties agree to the application of the law of a non-EU country to their agreement, the Regulations are intended to override that choice in respect of activities carried out by the agent within Great Britain.
The Regulations do not apply where an agent is appointed for a territory outside the EEA, even where English law (or that of another EEA Member State) governs the agency agreement. Common law will govern these relationships.