Last May, the then-UK government launched a consultation on whether to repeal the Commercial Agents (Council Directive) Regulations 1993 (CARs), an instrument of retained European Union law granting additional rights to commercial agents who promote or market goods on behalf of a brand owner. 

But in February, the current government announced that the CARs would remain in force without amendment. While the consultation was framed as an opportunity for the UK to harness its new-found regulatory freedoms following its exit from the European Union, from the consultation responses it appears that the majority of both agents and principals in the luxury goods sector will welcome the decision to leave the CARs in place as this ensures consistency for those navigating these complex business arrangements. 

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, 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 help enforce 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.

Main findings of the consultation

The consultation garnered 86 responses of which more than 70% were commercial agents, predominantly sole traders or small businesses with 1 to 49 employees. The feedback revealed a distinct polarisation of views between commercial agents and principals, which is unsurprising given the CARs are designed to protect agents.

Commercial agents stressed that the CARs protect against larger companies on the termination of contracts – particularly on the levels of compensation that may be payable. In addition, they also function as a contract in the absence of a written one and, therefore, provide clarity. They help to provide a clear framework when engaging with principals and function as a form of quasi-employment protection for sole traders. If they were repealed it could make it harder for commercial agents to negotiate contracts with principals and could result in making the profession of commercial agents less attractive with fewer people joining it.

On the other hand, principals who responded were critical of the CARs, arguing that they are weighted in favour of commercial agents providing an unequal business relationship. They prevent principals’ ability to negotiate their own terms on compensation and indemnity and in some situations can prevent the services of underperforming commercial agents from being terminated. 

Conclusion of the consultation

Overall, the feedback from the consultation indicated that the CARs are effective for commercial agents and are well understood by respondents. The consultation concluded that the CARs provide necessary protections to commercial agents when negotiating contracts with principals, who often represent larger luxury goods brands.

Although (as mentioned above) some principals mentioned that the CARs restrict the ability to freely negotiate contracts between commercial agents and principals, there was not significant evidence to suggest this is a major issue requiring change.

As luxury brands primarily tend to operate as a principal, as opposed to an agent, this decision may not be welcomed by those brands who engage commercial agents, but at least there is now clarity as to the government’s intentions. 

Bird & Bird lawyers Victoria Hobbs and Louise Lanzkron regularly advise on issues relating to the CARs, and on alternative structures which can avoid the protective regime. They can be reached at [email protected] and [email protected].