E.E.C. Directive on Self Employed Commercial Agents
EU & International Affairs
Present Progress of Directive
The E.E.C. Commission first submitted this draft Directive to the Council in January, 1979. The proposal was intended to eliminate distortion of competition arising because of different national laws relating to agency arrangements. In our jurisdiction such contracts are not constrained either by Statute or custom and practice. In Civil Law jurisdictions agents have rights, particularly rights arising on termination of agencies, which do not arise here.
The Directive was adopted by the E.E.C. in December, 1986, and must be implemented in Ireland by 1 January, 1994. When implemented it will have a significant impact on the relations between agents and their principals as it will not be possible to contract out of certain provisions including those which will entitle the agent to minimum compensation on the termination of his contract.
The Directive provides effectively a model contract including such material as:
- the definition of "Commercial Agent". The definition excludes, on the one hand, distributors who operate on a principal to principal basis and agents who are employees but who are remunerated partly on a commission basis (Art.3);
- the obligation to act in good faith, to supply relevant information, to keep principals' money separate from his own, to keep proper accounts (Art.5);
- to protect commercial or industrial secrets (Art. 6);
- permitting the agent to carry on other activities provided they do not conflict with his obligations to his principal (Art 7);
- entitling the agent to indemnity by his principal for any claim for damage if the claim results from a breach of industrial, commercial or other rights by the principal (Art. 8);
- delegating to the agents authority to represent the principal (Art. 9)
- obliging the principal to act in good faith and assist the agent (Art 10);
- defining agent's right to remuneration and the circumstances in which the entitlement arises (Articles 11, 12, 13, 15, 16, and 17);
- providing for Special Commission where agent is obliged to collect monies for his principal (Art. 14);
- principal's obligation to provide a statement of account monthly (Art. 18);
- agent's right to indemnity even where principal fails to make full use of his services and his right to reimbursement of expenses (Art. 19 & 20);
- special provision for del credere agents;
- right of each party to receive written statement of terms of contract and of its termination (Arts. 23 & 24);
- definition of date of termination of contract for a specific term (Art. 25) and of contract for an indeterminate period (Art. 26) which shall not be less than six months;
- circumstances in which either party may terminate (Art. 27);
- provisions dealing with agent's rights to damages or indemnity on breach or non renewal. The indemnity to be not less than 1/10 of the agent's annual remuneration over the preceding 5 years nor greater than twice that annual remuneration (Arts. 28, 29, 30, 31);
- provision limiting restrictions on the business activities of the agent after the contract has terminated. In particular no limitation is excess of 2 years duration in valid (Art. 32);
- larger entities acting as agents (paid up capital greater than 100,000 ECU's or turnover in excess of 500,000 ECUs per annum) may derogate from Articles 14(4), 19, 21, 26(2) and 30;
- defining the limitation period for claims as 3 years, (Art. 34);
- providing that any stipulation derogating from Articles 8, 10(2)(c), 12(1)(a),15, 18, 19, 21(1) (2) and (3), 23, 24, 27, 28, 29(2), 30, 32 and 34 shall be void (Art.35)
You have been warned. Now is the time to take out the agency contracts file and review all existing arrangements in the light of these proposals.
What action should you take?
If you are a principal you should look at your contracts and your agent's to see if any of the provisions conflict with the mandatory provisions of the Directive. If they do then you may wish to terminate them and negotiate new arrangements which are not in conflict and at the same time introduce limitations on termination payments which are within the permitted perimeter. If the agency is for a term of years it may only be terminated by mutual consent
If you are an Agent you should also consider whether re-negotiation is desirable. It is likely that most agents will feel reassured by the provisions of the Directive which, in general, will enhance their position. Perhaps they should buy up all the available copies of this Gazette to ensure that their principals do not get wind of it.