As a lawyer, I am frequently asked for my view as to the most ridiculous law that applies to business and which should be scrapped.
Without hesitation, I have to say that it is the law which applies to the protection of Commercial Agents. It has to be the most unjustified, unintelligible and self-defeating piece of law which I have ever come across. The law was enacted just after I qualified as a solicitor and nearly 20 years on it still remains difficult to provide detailed advice to businesses and agents alike as to how the law should be interpreted and what it really means. It may be no surprise that the law comes from Europe and is meddling at its best.
The thinking was that travelling salesmen or agents were downtrodden and needed particular protection. Further, that since some countries within the EU treated their agents more generously there had to be a levelling-up of rights so that there was no distortion of competition within the single market. As a result, the Commercial Agents (Council Directive) Regulations 1993 was enacted. It affected all self-employed agents (including limited companies acting as such) who had the authority to negotiate the sale or purchase of goods on behalf of another.
The Regulations gave agents quasi-employment rights. For example, to receive a written statement of terms, the right to a notice period, how remuneration is to be calculated and provisions which go to what agents and principals can expect from each other. No doubt they provided some much-needed clarity for both agents and principals with informal arrangements.
However, where the wheels come off is the provision within the Regulations for a compensation or indemnity payment to be made to the agent upon termination. The Regulations do not usefully provide any detail as to how the payment should be calculated but instead make obscure references to the continuing benefits which the business is left with as a result of the agent’s work and some sort of payment of goodwill. The Regulations bizarrely differ from any other legal principle in this country for calculating damages and provide for a payout even if the arrangement has been terminated correctly and with notice.
Nearly twenty years on, it remains the case that there is still little legal authority to help us interpret the Regulations probably because very few businesses have had the appetite to stand the substantial litigation risk of asking the Court for guidance on such a badly-drafted piece of law.
The law has been self-defeating since independent travelling salesman have become something of an endangered species. As a result of the potentially very large termination payments which agents could be entitled to, the number of agents now appointed is very low. Before the Regulations, businesses were more than happy to avoid the additional burden and cost of employing salesman by appointing self-employed agents as a fast and low cost means of entering into a market. Now the pendulum has swung the other way and an employed sales force or distribution network is more viable than trying to carry out some pre-contract analysis of the likely significant payment due to an agent upon termination.
Many businesses still contact me having previously been unaware that the Regulations apply. To the unsuspecting business it can be a huge potential liability which threatens the viability of the business. To the agent it can be an unexpected windfall. However, on any view, this law has done little to promote the self-employed and ordinarily entrepreneurial travelling salesman.
Jonathan Mortimer is Head of Dispute Resolution at Raworths. If you need any help on dispute resolution issues, contact Raworths, telephone 01423 566666 or visit our offices at Eton House, 89 Station Parade, Harrogate HG1 1HF. Alternatively you can email him – firstname.lastname@example.org