Commercial agents terminated on spurious grounds may still be entitled to lucrative compensation under the Commercial Agents (Council Directive) Regulations 1993.
The principal, fearful of having to pay compensation at the conclusion of an agency agreement, may contrive a reason or reasons to justify terminating a perfectly good hard working agent. Sometimes the backdrop is the introduction of a new sales manager who may previously have managed an employed salesforce and struggles to understand agents and the fact that he doesn’t have complete control of their time.
Equally, an agent may commit an act that causes a fundamental rupture of the parties’ agreement and he is rightly terminated with immediate effect. Examples known to the writer include an agent stealing a product from his customer on his way out of the store, an agent forging a customer’s signature on an order and an agent defaming his principal in the company of customers when “in drink” at the end of a trade show.
If an agent is terminated on justifiable grounds then this will exclude his right to payment of compensation. It is therefore crucial to establish the nature and seriousness of the alleged breach.
Often a principal will specify in the agreement that a breach such as failure to meet minimum sales targets, or an agent taking on a competing line etc, is a breach which justifies immediate termination. If the failure to meet a target is caused by external factors, such as recession, or loss of a major customer, then it is arguable that failure in such circumstances does not constitute a serious breach and the agent may still be entitled to compensation. In the case of an agent taking on a competing line this is a question of fact and analysis: are the product lines actually in competition or is it all in the mind of the principal?
Breach of contract – case examples
In this highly entertaining case the agents selling Crocs (the popular plastic shoes) were unhappy with their principal so published the following online:
‘That’s a Croc!! Of Shite!!
SPECTRUMS WAR OF LIGHT VS DARK
SOS to the stoned nether regions of the Netherlands, evil dark lord create partys to numb the brains of the workers but couldn’t do the galactic job of putting shoes in boxes. Leaving the UK to fend off retailers fighting like storm troopers with phone & email abuse, they fought for a year with a promise of reinforcements. This was an evil plan to draw the UK into the dark abyss filled with Croshite.. in the intense battle that followed, we had offered the crown jewels of UK retail to the dark Lords who then shat all over the retail landscape, leaving behind the strewn waste of the spectrum crew. WE WILL SURVIVE battered, bruised but laughing.’
The principal took the view that this was a breach of the agent’s duty to act in good faith and terminated the agency agreement. As one may guess, this was a massively lucrative agency and therefore the outcome was of significant consequence to all parties. The court held that whereas it was a breach of regulation 3 (to act in good faith) to criticise a principal this was not bad enough to justify termination.
At first instance the judge held that the claimant’s breach was not sufficiently serious to be repudiatory and he found for the agent. The first instance judge noted:
‘My conclusion here is that it was a breach of Spectrum’s duty to BV to put the crawl [the statement above] onto the website, but that the seriousness of that breach fell a long way short of the seriousness required to entitle BV to terminate the agency. A reasonable person would not conclude that it showed an intention on the part of Spectrum not to fulfil the contract. The main factors in my reaching that conclusion are that the crawl was obviously intended to be humorous (and its scatology sounds worse in a court than in the world of the web); that its circulation was very limited, and to persons who would see the joke; that it was very unlikely that a retailer (or any other person seriously interested in Crocs) would see it unless they had the link; and that the situation at BV which was the subject of the crawl’s Star Wars humour was well known to Crocs retailers.’
The principal appealed, which was dismissed, with the Court of Appeal saying:
- ‘The Crawl did not in terms disparage the goods to any one. It referred to the inability of the defendant to meet delivery obligations, a state of affairs that was well known. The style of the Crawl was obviously jokey, though not everyone might see the joke and though the defendant was not amused. The circulation of the Crawl was limited and temporary. The website was soon shut down for other reasons and the Crawl was removed. The failure to give the requested assurance was not serious, if what the claimant had done was not in fact a serious breach. There was no evidence of harm suffered by the defendant.
- In my judgment, the disparagement of the defendant in the Crawl was, as the judge held, a breach of contract, but it was not a breach (whether of regulation 3 or of the fiduciary duty under the general law) that went to the root of the agency relationship arising from the contract. It was more in the nature of a one-off incident that did not involve bad faith on the part of the claimant, was not shown to involve a real risk of harm to the defendant by dissemination to the world at large and did not, when viewed objectively, evince an intention to abandon or to refuse to perform the commercial agency contract.’
This is a case that could have been decided either way and the agents benefited from a degree of good luck.
In this case the agent, a senior professional in the furniture field, did not want to start using email rather than fax. This infuriated his principal who indicated that the agent’s intransigence was a cost to his business. The principal advised it would charge Mr Gledhill £100 per month for the inconvenience. In a rage of fury the agent emailed the principal:
‘I just can’t believe you. You are at your happiest when you are always causing grief for people and just try to sort of upset people, people would not support you, and I just think you are a horrible, despicable little man. I really do. I just think you are absolutely gutless. You have just taken £195 from me which covers the hotel, fair enough, and £100 twice plus the VAT. You just seem more intent on sort of … as opposed to getting the business, the nitty gritty part, you seem more intent on causing trouble to people. I think you are an absolutely shit, I really do. You are a despicable, horrible little excuse for a human being.’
Here the court held that the principal was entitled to terminate the agency and drew employment law analogies, which was a departure from previously trodden ground. The agent had been given an opportunity to apologise but his apology was not sufficiently fulsome, or so the court found.
If your agency has been terminated on the alleged grounds of serious contractual breach contact our commercial agency team immediately so that we can check whether you still have a right to compensation.