The Department for Business and Trade (DBT) has announced in its recent consultation response that the Commercial Agents (Council Directive) Regulations 1993 (regulations) will remain in force without amendment for the purposes of English law.
Why was there a consultation into deregulating the regulations?
As previously reported by us here, in 2024 the DBT (under the former government under the Conservative Party) opened a consultation on the regulations. This was part of a wider project of removing from the UK statute book regulations that were considered "unnecessary and burdensome". The opportunity to scrap the regulations was brought about by Brexit enabling the UK to diverge from EU legislation (the original source of the content of the regulations).
Why are the regulations being retained?
The government response to the consultation states that:
- on balance, feedback from the consultation showed that the regulations work well for commercial agents and the regulations were well understood by respondents
- the regulations provide protections to commercial agents when negotiating contracts with principals who are, in many cases, businesses larger than the commercial agents themselves
- whilst a limited number of principals commented that the regulations did not allow for contracts to be negotiated freely between commercial agent and principal, there was not a sufficiently large body of evidence to suggest that this is a major issue and that there is a strong case for change
What is the relevance of the regulations?
By way of reminder, the regulations implemented into English law an EU Directive which aimed to address the imbalance that can exist between commercial agents (which are often smaller, less well-resourced companies and individuals), and principals which are often larger commercial entities. The definition of a “commercial agent” for the purposes of the regulations is therefore broad, and the regulations currently apply to both written and also oral agency agreements as well as temporary, indefinite or fixed term arrangements.
The regulations contain many obligations that agents and principals cannot contract out of either at all or to an only limited extent. These include minimum notice periods for termination and compulsory payments of either compensation or indemnification following termination.
For a further refresher on when and where the regulations apply and some key implications on in scope contracts, see our briefing note on the regulations available here.
What are the general implications of retaining the regulations?
There may be disappointment at retention of the regulation by its detractors. Some critics of the regulations consider the regulations hard to align with the general stance taken in English law that businesses should be free to agree contract terms between themselves.
Principals are more likely than agents to be disappointed at this announcement as the regulations contain a number of protections to agents (e.g. default level of remuneration where there is no agreement on remuneration, certain information provision requirements placed on principals and most notably, provisions governing minimum notice termination rights as well as compensation or indemnity payments on termination).
The regulations are well established, having been in place for over 30 years, and the outcome of the consultation indicates that they are well understood to those to which they apply, although it should be noted that this was a relatively small pool of responses with only 86 responses received (70% of respondents being from commercial agents).
There may be some relief amongst businesses operating in both the UK and Europe that the regulations are being retained on the basis that if the UK had adopted a different approach to the same issues this would have led to businesses having to take additional steps to ensure compliance with differing UK and EU regimes.
What should agents and principals do now?
Many of the provisions of the regulations are mandatory and businesses operating in Great Britain or the EU should continue to consider the impact of the regulations when drafting new commercial agency contracts as the optionality allowed by the regulations can be used to enhance a party’s commercial interests in places.
Where a principal wishes to terminate or change a commercial agency contract, principals would also do well to seek legal advice to seek to minimise liability and avoid breaching the regulations.
Beverley Flynn
Angelica Lovell