Dealing With Sales Agents Termination Notice & What Happens Next

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.

Read Part 1 of this blog post, Considerations Before Terminating a Sales Agents Contract.

Giving notice to terminate the agency contract

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:

• It makes clear that the agency contract is being terminated. This may seem obvious, but you would be surprised how often there is ambiguity about whether or not a contract is being terminated.
• The notice must make clear when the agency contract terminates. Is it being terminated with immediate effect because of serious breach by the other party? Or is this a no-fault termination, in which case the notice periods outlined above would apply?
• If you are relying on serious or material breach(es) as the basis to terminate the agency contract, set out those breach(es) in the termination notice.

Post termination obligations

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:

• It is set out in writing;
• It relates to the territory and / or group of customers that the agent dealt with under the agency contract;
• It relates to the kind of goods that the agent dealt with under the agency contract;
• The period covered is not more than two years following termination (Note: the general law will quite often require that a shorter period of time is reasonable in the circumstances).

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.

What should an agent do when they receive a notice to terminate their agency contract?

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.