Agency agreements are commercial agreements which see the agent sell goods or services on behalf of the principal.
Unlike a commercial distribution agreement, title to the goods does not move from the principal to the agent.
If you are considering entering into an agency agreement the key considerations will be under the heads of
- Normal commercial principles and contract law
- The Commercial Agents Directive and
- Competition law.
Competition law will only need to be carefully considered if the principal and agent are considered to be two separate “undertakings” and this will depend on the amount of risk borne by the agent.
Generally however, an agent is considered to be part of one undertaking with the principal; if this is the case then there should be no concerns in relation to the prohibition on anti-competitive agreements.
The Commercial Agents Directive
The Commercial Agents Directive (Council Directive 86/653/EEC) has been implemented in Ireland with the Commercial Agents Regulations of 1994 and 1997.
This law favours the agent to a large extent as it seeks to balance up the strength between the typically larger principal and more dependent and smaller agent. This is given effect by imposing conditions in an agency agreement under three important headings:-
- How the agent is remunerated
- The notice required to terminate the agency agreement
- Any compensation to be paid to the agent for the termination of the agreement.
What is a commercial agent as defined by this legislation?
There are 3 broad criteria to be satisfied:-
- The agent must be self employed
- The agent must have authority to act on behalf of the principal
- The agent negotiates and concludes transactions on behalf of the principal.
It is important to note also that the Commercial Agents Regulations defines a commercial agent as someone selling goods, not services, on behalf of a principal.
Furthermore there are some important exclusions in the legislation as to who is a commercial agent, for example a partner in a partnership and an officer of a company who is authorized to enter agreements on behalf of the company.
In Ireland it is also necessary to have an agency agreement evidenced in writing to be covered by the Commercial Agents Regulations.
Remuneration of the Agent
The Commercial Agents Directive and Regulations contain some important provisions in respect of remuneration of the agent.
For example, how the agent is to be remunerated where the agency agreement does not provide for this and the circumstances where the agent is entitled to be paid after the termination of the agreement and requirements that the principal provide regular statements of the amount of commission due to the agent.
Termination of Agency agreement
The law in this area sets our
- The necessary notice periods required before termination
- Compensation for damage to be provided to the agent on the termination of the agreement
- Compensation where the agent dies.
Clearly the Commercial Agents Directive and Regulations require careful consideration and legal advice prior to entering into such an agreement, either as principal or commercial agent.
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