Lots of people are paid commission and are self-employed "commercial agents" in the UK. They enjoy substantial legal protection under special regulations.

In a recent case (Groupe Danone) the courts looked at the legal position of commercial agents. Before appointing an agent, it is wise to take legal advice on the implications, as a large lump sum may be needed to be paid to agents when their contract is terminated, due to the provisions of the EU agency directive. The lump sums awarded can be large.

Last year, the House of Lords in a leading case (Howard Hallam v Lonsdale) held that the relevant factors in deciding what lump sum pay-off an agent might claim when his or her contract is terminated include what the earnings prospects of the agency were and also what people would have been willing to pay for similar businesses at the time. In that case, the agent had sought £20,000 compensation, but was only awarded £5,000 and the courts put paid to the idea that agents would always be entitled to two years' commission as a lump sum when their contract was terminated.

In the Groupe Danone case this summer, the European Court examined when commission was payable to an agent. It said that even though the law provides that "exclusive" agents are entitled to commission on all orders from their territory, where the purchases were made from a central buying office outside that area then the agent had no entitlement to commission. In practice, had the contract dealt with the issue then the dispute would not have arisen. More and more companies are using group purchasing and buying group arrangements to purchase products. Commercial agents and their principals would be wise to ensure they address this issue in their agreements.

Now may be a good time to revise your commercial agency contracts and we can advise on the best clauses to include to reflect these case law changes as well as help you as a principal or agent if claims are made.

Contact Philip Wild on 020 7024 8029.