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In Part 1 of this blog we looked at the main considerations you should have before terminating a sales agent. In part 2 we look at what you should do when giving Sales Agents notice and the following steps after.
Any notice to terminate the agency contract should be given by the principal or agent in writing. This can usually include email, but double check whether the “notice” provisions in the agency contract permit or exclude notices being provided by email.
The notice to terminate doesn’t have to be lengthy, but it is very important that it is clear and deals with the following:
Most written agency contracts will require the agent to return all product samples, marketing materials and any other materials belonging to the principal following termination of the agency contract. They will also require the agent to stop promoting and marketing the principal’s products and to stop using any intellectual property rights of the principals (logos, trade marks etc).
The principal will be required to pay all outstanding commission that is owed to the agent (and see above re: commission claims under Regulations 7 and 8).
Both parties will also continue to be bound by any confidentiality obligations in the agency contract.
The agency contract might also include a restraint of trade clause which attempts to prevent the agent from acting for other principals whose products compete with those of the former principal, for a period of time after termination. There are often issues with the enforceability of such clauses and, in addition to the general law on restraint of trade clauses in England and Wales, the Regulations specify that a restraint of trade clause will be valid only if and to the extent that:
If the restraint of trade clause does not deal with the above and / or falls foul of the general law, it would not be effective and would not bind the agent.
Firstly, make sure that the agency contract is being terminated. It may be unclear whether the agency relationship is continuing or has terminated. If the agency is being terminated, make sure the date of termination is clear. The amount of any compensation or indemnity to which the agent is entitled will be calculated as at the date of the termination of the agency, and the amount may vary depending on the date of termination.
Seek independent legal advice quickly, before writing back or responding to the notice.
If termination is subject to a notice period, the agent will need to ensure that they continue to comply with their contractual obligations throughout that notice period.
If the principal alleges that the agent is in breach of contract, the agent may need to produce a detailed denial of the allegations in order to protect their position.
If the agent intends to bring a claim for compensation or indemnity under Regulation 17, note that you would need to notify the principal of this intention within one year of the termination date. If you fail to do so, you will lose the right to bring this claim. Again, this notice would need to be given in line with any notice provisions in the written agency contract.
The agent should also ask for and obtain from the principal any documents that they need in order to put forward their potential claim(s). This might include details of orders and sales, which could be relevant to claims for outstanding commission under Regulations 7 or 8 and also to any compensation or indemnity claim. If necessary, the agent can rely on their right to inspect a principal’s books under Regulation 12 to get that sales information.
The agent should also take care that they don’t inadvertently accept any payments (e.g. of commission) by the principal on a “full and final settlement of all claims” basis, as this would prevent the agent from then pursuing a claim for compensation or indemnity.
Kevin Manship leads the Commercial Litigation team at Peter Dovey and Co Solicitors and acts for principals and sales agents on all matters relating to commercial agency law. He advises across the full life cycle of an agency contract, including the negotiation and drafting of an agency contract at the outset of the relationship, the rights, obligations and remedies applicable as issues arise during the life of the agency contract, the impact of the Commercial Agents Regulations (where applicable) and the issues and claims which may arise from termination of the agency contract.
You can contact Kevin by email at firstname.lastname@example.org or by telephone on 07778 010574.