This industry depends heavily on commercial agents. In good times, everyone benefits. When times are bad, is it a different story ?
Michael Morse looks at different models. If a rep and an agent can generate the same sales, which should you use ?
Agents or Reps
Unfair dismissal of employee:
average award about £8,000.
maximum limit £ 66,200
Compensation for terminating agency:
average award probably £20,000.
no maximum limit
Key factors - Agents
Many agents operate without any written agreement. This is ill-advised from a principal’s viewpoint - a contract can build in valuable protection that ‘balances the scales’.
It can say failure to hit minimum sales is a fundamental breach (justifying termination). It might also give the right to take over House Accounts. These are forms of ‘self help’ freely available IF a written contract builds them in.
Otherwise companies must recognise some facts of life -
• Underperformance does not justify termination
• You must pay for the business ‘taken’ from agent
• The agent’s own termination (eg retirement/death) may give rise to compensation
So what are the financial risks on termination ?
The company will have to ‘buy’ the agency back. In practice this means -
• no statutory cap on value
• very few defences available to principal
• company likely to pay agent’s legal costs
• cap is possible in advance by written agreement
Key factors – Reps
Sales reps are employees like any other so how would their dismissal compare with termination of an agent?
A disgruntled rep faces some significant hurdles. He must prove dismissal was unfair. Performance and conduct are very relevant (but irrelevant to agents). Then he must make serious efforts to replace any lost income and, if he does, the company gets credit for it. Finally - even if he jumps these hurdles - there is a limit on any unfair dismissal award. Earning £100k last year will never get him a £100k award.
An agent, on the other hand, has no ‘mitigation’ duty. He might replace all losses overnight (eg signing to a competitor) and still recover 100% of his old agency income from his old company.
Healthcheck
In many cases, it is of course entirely suitable to operate through agents. Termination issues are not the whole story.
At the very least however companies should examine arrangements to see if they are strong enough in key areas –
• Fundamental Breach - Why argue over whether something is or isn’t ‘fundamental’? Define it in the agreement and set the bar where you want it.
• Financial Caps - There are different ways of calculating pay outs. You can elect the method in your Agency Agreement. ‘Indemnity’ is capped. ‘Compensation’ isn’t. Silence is costly.
• Retirement Planning - If your agent decides to retire, the Regulations say he is entitled to a pay out. This does not preclude provisions which lessen the blow.
• Accounts - The company should have the right to deal quite freely with accounts, including taking them in house. Arguments over such actions are otherwise a common source of friction and claims.
They should also be very cautious in all formal dealings with agents.
Conclusion
All agencies must end eventually.
In the eyes of the law, their value really belongs to the agent. That truth is hidden until termination creeps up on you.
Companies often feel unprepared and helpless, especially in the face of union backing for agents. The answer is to know what you can do – and do it!
