Termination of Commercial Agency Agreements: What Agents and Principals Need to Know

When can my principal terminate my agency agreement? 

An agency agreement is likely to set out when and how an agency agreement can be properly terminated, although this does not prevent a principal from terminating at any time. If the principal does not terminate the agency in accordance with the terms of the agency agreement, it will be in breach of the contract. The principal may also be in breach of the regulations if it doesn’t give the agent the minimum notice prescribed by the regulations. 

What payments am I entitled to upon agency termination? 

A principal may terminate an agent at any time; however, if it does so, it is likely to be liable to pay the agent a termination payment under the regulations. An agent’s right to a termination payment will depend on the circumstances surrounding the termination and the terms of the agency agreement. In most cases, an agent will be entitled to claim compensation or an indemnity under regulation 17, and pipeline commissions under regulation 8. There may also be a claim under regulation 15 if the principal has not given the agent the minimum notice of termination. 

Termination due to serious breach: what happens next? 

If the principal terminates on the grounds of the agent’s repudiatory breach, it may be entitled to terminate the agency without giving notice and without any obligation to pay compensation or an indemnity under regulation 17. The agent would, however, still be entitled to be paid all commissions due and owing up to termination and pipeline commissions. The right to terminate on this basis is a common dispute between agents and principals, and advice should be taken by parties in these circumstances. 

What is a Repudiatory Breach in an agency agreement and why does it matter?

A repudiatory breach is a very serious breach of the agency agreement entitling the principal to treat the agency agreement as immediately at an end and avoid paying compensation or an indemnity payment under regulation 17. 

Whether an agent is in repudiatory breach of the agency agreement will be fact specific and save for the most serious breaches, it is usually very difficult for a principal to terminate on the grounds of repudiatory breach. It is recommended principals take legal advice before they decide to terminate to ensure they do not expose themselves to claims under the regulations.   

Can a principal terminate an agent for poor performance? 

A principal can terminate a commercial agent for poor performance at any time. However, if there is a written agreement, the principal should comply with any termination provisions set out in the agreement. 

Poor performance may give rise to a contractual right under the agreement to terminate, but that will not necessarily mean the principal can avoid paying the agent a termination payment. It will only be if the agent’s poor performance is so serious that the principal has the right to terminate the agent with immediate effect that the principal be able to avoid paying a termination payment under regulation 17. Advice should be sought by principals who are considering terminating for poor performance so they understand what notice should be given, and their potential liability to the agent upon termination.   

What steps should I take if an agency is terminated?

Upon termination of an agency, an agent should seek advice as to its entitlement under the regulations. It will be important for the legal advisor to understand, amongst other things, the terms of the agency and the basis for termination. 

What notice should a commercial agent receive? 

If a principal is alleging that the agent is in repudiatory breach of the agency, it is likely they will bring the agency agreement to an immediate end. However, if it is subsequently found that the agent was not in repudiatory breach, the agent will be entitled to claim damages in lieu of notice. 

If the principal is terminating other than on the grounds of repudiatory breach, the minimum period of notice required by the regulations should be given. This will be dependent on the length of the agency. For agencies which have lasted for three years or more, an agent must be given three months’ notice of termination to coincide with the end of a calendar month. 

In some cases, the written agency agreement may provide for a longer notice period than that set out in the regulations, and in that case, the agent should be given the longer notice period. 

What if a principal doesn’t give the correct notice? 

If an agent is provided with less than the required notice under the regulations (or under a written agency agreement), the agent will have a claim against the principal for a payment “in lieu of” the notice which should have been provided.  It is not possible for parties to an agency agreement to agree to shorter notice periods than those provided by the regulations, regardless of what a written agency agreement might say. It is only where an agent is in repudiatory breach that a principal is entitled to terminate without notice. 

What if a principal prevents me from doing my job? 

If a principal makes it impossible for an agent to properly perform its agency role, for example, by not providing the agent with suitable samples, the principal may be in repudiatory breach of the agency agreement. If the principal is in repudiatory breach, it would entitle the agent to treat the agency as at an end and claim a termination payment. An agent who believes their principal might be in repudiatory breach should seek advice before terminating their agency to ensure their entitlement to compensation or an indemnity payment is not compromised.    

What actions should I take if the principal fails to pay post-termination?

If a principal refuses to pay an agent its entitlement under the regulations following termination, the agent should assert a claim under the regulations. It may be possible to negotiate a settlement of an agent’s claim, or it may be necessary to issue court proceedings. Agents are encouraged to seek advice in these circumstances, so they understand their entitlements under the regulations and the potential value of any claim.