Understanding UK Agency Law
If you want to sell your product and/or service into a sector where you have few contacts, or perhaps you wish to enter an oversea market, you may wish to consider appointing an agent who can negotiate sales agreements on your behalf.
Agency law deals with the relationships between:
- principal and agent
- agent and third party, and
- principal and third party
What are the duties of an agent?
The agent owes both contractual and fiduciary duties to the principal. Contractual duties should be set out in the agency agreement and the agent is responsible for performing them with reasonable care and skill, and in compliance with the principal's reasonable instructions. The agent's fiduciary duties require that the agent put the interests of the principal before their own and perform the duties of the agency properly and faithfully.
What should I include in an agency agreement?
The key elements of an agency agreement include:
- the agent's territory and whether they have exclusive rights
- which products they can sell
- what authority they have to act on your behalf
- any restrictions on the agent's activities (eg selling competing products)
- your respective responsibilities in terms of promoting your product, making sales and fulfilling orders
- the agent's rights and restrictions in relation to your intellectual property
- restrictions on disclosure of confidential information
- how the agent is paid (including rules on expenses)
- rates of commission and whether it differs from product to product or customer to customer
- arrangements for terminating the relationship
To avoid disputes and to ensure both parties understand what is expected of them it is imperative that you have a clear, concise contract in place between you and your agent.
Am I responsible for my agent’s actions?
Yes, you are fully liable for any actions an agent takes on your behalf if he or she is acting within the authority you have given to them. This is another reason why it is so important to receive expert legal advice before entering into an agency arrangement. You must be fully aware that you will be bound by any contracts an agent enters in to on your behalf and you may be liable if they injure a person or damage property.
How can I terminate an agency agreement?
Agency agreements can end at a fixed time (for example, within 12 months) or continue indefinitely. If the agreement carried on after the fixed term ends, then it will be presumed it has turned into an indefinite agreement.
An indefinite agency agreement can only be terminated by notice and how much notice needs to be given should be stipulated in the agency agreement.
Under UK and European law, self-employed agents are legally entitled to either 'indemnity' or 'compensation' payments upon termination of the contract regardless of the reason it was terminated (except in cases of gross misconduct by the agent).
These payments reflect the value of the agent's work in building up your sales - for example, their efforts to target clients and begin marketing to them. They can be capped at a maximum of one year's commission.
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