Cutting Compensation for Commercial Agents

A recent High Court decision could mark a significant development in the court’s treatment of claims for compensation under the Commercial Agents Regulations.

The Regulations provide for an agent to receive compensation on the termination of his agency. Until now the amount of compensation has been based on the value of the agency and a figure equal to twice the annual gross commissions has often been used. However in this case the compensation was linked to the notice period which was a year. Often agency agreements will contain much shorter notice periods so from an agent’s point of view in future the compensation entitlement could be much lower. Principals also need to consider whether in future it is still appropriate to negotiate an indemnity in the agency agreement which until now has been a less expensive and more certain option than relying on the compensation route.