To do … or not to do – the following are examples of some questions and answers all related to common agency law conundrums (and all of which, for clarity and comprehension, and in order to provide important information as to all facets related to the same issues, require much greater expansion and explanation than the inches of this article’s columns allow). To ever resign or not resign an agency? The basic rule for any agent is never to resign (i.e.:- terminate) his own agency as, save for a few exceptional circumstances, wherever an agent does so terminate, he [the agent] would ordinarily then lose whatever entitlement he might otherwise have had to either compensation or an indemnity payment. Whereas it may be that the agent’s situation is such that he may not actually be concerned about losing any entitlement to any compensation/indemnity payment (e.g.:- his main priority may (for example) be to take up another agency opportunity with another principal), the exceptions to this golden rule of an agent not ever terminating his own agency would include where the agent (being an individual) dies or otherwise becomes too ill or regarded as being too old to carry out his agency function, or where the principal’s conduct has been such that the agent cannot realistically be expected to continue as the principal’s agent. Clearly, and as ever, each individual set of circumstances need to be considered on their own merits, but, and for obvious reasons, an agent should not ever terminate his own agency without first having sought appropriate legal advice. To enter into a written contract or not to enter into a written contract? Basically, and whereas it is always better to enter into a written agreement (i.e.:- such a document ought ordinarily to provide good evidence of the fact of the principal/agent relationship, and as to the basic terms agreed), it is very important from the agent’s perspective to ensure that all of the provisions of the agreement are acceptable (in also reflecting what in principle has been agreed) and not unfavourable to his position, as an agent entering into a written agreement which is to his disadvantage (and in not reflecting terms which have previously been agreed, albeit perhaps not at the time committed to writing) would potentially then be in a situation whereby he’d have been considerably better off had he not entered into the written agency agreement at all. To agree to an indemnity or be prepared to accept compensation? Assuming that there is ultimately a valid entitlement in principle to any such financial payment at all, the main differences as between (on the one hand 🙂 compensation and (on the other hand 🙂 an indemnity are that:- Firstly, whereas compensation is intended to compensate an agent for the loss of the income stream associated with the terminated agency, indemnity payments are capped as a maximum of twelve months’ average annual commission income from the agency in question, and are intended to reflect the extent to which the agent has left his (former) principal with an ongoing (future) benefit from business which he [the agent] introduced; Secondly, an agent would always in principle be entitled to compensation as opposed to an indemnity unless he has beforehand specifically and previously agreed to the indemnity payment alternative; and:- Thirdly, the way in which compensation and indemnity payments are calculated are very different, with compensation sums being based on the hypothetical sales value of the agency as at the point of termination, while indemnity amounts (likewise again, very broadly speaking) are worked out through a series of related calculations, commencing with a basic analysis of the agent’s commission income over the last twelve months of the agency derived from business which he previously effectively introduced (be that business from new customers or increased business from already existing customers). Whereas no one without having had appropriate specialist legal advice should make the decision as to whether to opt in a written agency contract for an indemnity over compensation, any agent considering a draft agency agreement which contains a proposed indemnity provision and which term may be being proposed sometime after the relationship has already started, must be very careful to ensure that the relevant contractual clause wording would not effectively exclude business introduced to the principal by him [the agent] prior to the date when the contract would be deemed to have taken effect. To accept a commission payment post termination of an agency or not to accept such a payment? Of course, where an agent, following termination of an agency, is owed any amount by way of commission, the agent should pursue and seek to recover the full amount of the relevant sum involved. This said without qualification, the one very important consideration which agents need to be mindful of however is that where, post agency termination, a principal offers to pay any amount by way of unpaid commission (or on account of anything else) on the basis that such sum would effectively be being paid [words to the effect of:-] in full and final settlement of all and monies owed or becoming owing now or in the future (i.e.:- not just in respect to the relevant present amount of commission), the agent (by accepting that amount on offer) may thereby be compromising all of his other claims against the principal in respect to (for example) compensation and all and any other statutory entitlements.
© David Bentley Bentley Agency Law Limited
David Bentley is a Partner with Bentley and Co. Solicitors and specialises in agency law.
7 Littlemoor Road, Pudsey, Leeds LS28 8AF Tel: 0113 236 0550 Fax: 0113 236 2511 Email: email@example.com www.bentleyandco-solicitors.com
Disclaimer: This column does not contain legal advice and is for general guidance only. Agentbase, Bentley and Co. Solicitors and the writer accept no liability in connection with the general guidance given in this column. Please ensure that you obtain legal advice before acting in reliance upon anything in the article. For example please be clear that the answers given in this column may not cover all possible angles, aspects, relevant considerations and/or points of law and so that all or any information which is given above needs in every instance to be referred for legal advice for clarification and amplification, before being relied upon.