The End of the Commercial Agency Protections? UK Government Extends Consultation into Repealing Retained EU Commercial Agency Regulations

The UK Government has extended a consultation it launched in May on whether to repeal the Commercial Agents (Council Directive) Regulations 1993, an instrument of retained EU law granting additional rights to commercial agents. As suggested by the title, Smarter regulation: deregulating the Commercial Agents (Council Directive) Regulations 1993, the consultation is framed as an opportunity for the UK to harness its new-found regulatory freedoms following its exit from the European Union. 

Following the election on 4 July 2024, it will be interesting to see whether a new government will continue with reform of the Regulations. If, as some expect, the next government seeks closer regulatory alignment with the European Union, then it is likely that these proposals may be watered down, if not scrapped all together.

What rights do the Regulations provide? 

A commercial agent is defined as a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person. Notably, the Regulations do not apply to services, though software is considered as goods in this context. 

The Regulations give commercial agents several rights which cannot be excluded in the agency contract. These rights may be particularly valuable where there is an imbalance in bargaining power between the two parties. For example, under the Regulations:

• Principals are required to act dutifully and in good faith towards agents, which includes providing the agent with the necessary documentation relating to the goods concerned, and obtaining for the agent all necessary information for the performance of the agency contract.
  
• Agents are entitled to commission on transactions concluded after termination of the agency contract if the transaction was mainly attributable to efforts made while the agency contract was in force.
  
• Agents have the right to receive a signed written statement of the terms of their engagement, which can be helpful in enforcing the agent’s rights.
  
• A guaranteed minimum notice period is implied into the agency contract of one month for every year the contract has been in force, up to three months.
  
• Principals are required to pay a sum to commercial agents upon termination of the agency agreement to reflect the benefit the principal continues to derive from the agent’s efforts, or to compensate the agent for the damage it incurs as a result of termination.

Current  proposal: Deregulation

The government proposes to bring forward legislation preventing the creation of any new commercial agents under the Regulations. Commercial agents in existing agreements will therefore retain their rights under the Regulations even under these proposals. The proposals would also exclude Northern Ireland, and any similar decision in that jurisdiction would be a matter for the Northern Ireland Executive.

The consultation proposes that “deregulating would simplify the UK’s legislative framework, reduce court time spent on interpreting these regulations, and most importantly make it simpler for businesses to contract with each other”. The consultation traces the original EU Commercial Agents Directive 1986 back to “a hybrid of French and German law” and states that the Regulations “do not sit easily with the UK’s broader legislative framework”. This is because the consultation views the Regulations as running contrary to businesses’ freedom to contract: “having regulations that take precedence over contractual terms is arguably unusual in the UK for business-to-business transactions”. 

However, as the consultation acknowledges, from the perspective of a self-employed person without access to sophisticated commercial advice, the Regulations could make a difference in correcting the power imbalance when contracting with a large firm. 

Continued compliance with EU law 

Even if the proposals make it onto the statute book, UK-based businesses will still need to abide by the Regulations in respect of commercial agency agreements already entered into. UK-based businesses engaging commercial agents located in the EEA, as well as Northern Ireland, will continue to be subject to the local equivalent of the Regulations in the jurisdiction where the agent is engaged.

The consultation is open to all until the new and extended closing date of 1 August 2024. The government is particularly interested to hear from businesses, trade associations, commercial agents, representative bodies, enforcers, as well as individual consumers. We will continue to monitor the situation and update you when we know whether a new government will take this consultation forward. 

With thanks to Sean Bullock for his help in drafting this update.