Deregulation of Commercial Agents Regulations: An Overview

Background

The Commercial Agents (Council Directive) Regulations 1993 (CARs) were implemented in the UK to implement the EU’s Commercial Agents Directive (86/653/EEC) (EU Directive). The CARs establish a framework governing the relationships between businesses (Principals) and self-employed intermediaries (Commercial Agents) who negotiate or conclude the sale or purchase of goods on behalf of the Principals. In force since 1 January 1994, the CARs provide statutory protections to Commercial Agents, including entitlement to compensation upon termination of their contracts, a right to commission, and requirements for Principals to act in good faith and provide necessary information and documentation to agents. Even in the absence of a written contract, the CARs can apply to a Principal-Commercial Agent relationship if certain conditions are met.

Prior to the introduction of the CARs, the relationships between Principals and Commercial Agents in the UK were governed by common law principles of agency and contract law. The EU Directive, based on a hybrid of French and German law, is designed to offer a harmonised level of protection for Commercial Agents across the EU. The UK Government opposed the EU Directive due to concerns about its compatibility with domestic legal principles and the overarching philosophy of contract freedom in business-to-business (B2B) arrangements. In a recent consultation it is now proposing to "deregulate" them.

Summary of the Government’s proposals for deregulation

In an effort to simplify the legislative framework and alleviate the regulatory burden on businesses, the UK Government has initiated a consultation on the proposed deregulation of the Commercial Agents Regulations (Consultation). Announced by the Department for Business and Trade (DBT) on 16 May 2024, this Consultation considers the proposal to halt the creation of new commercial agency agreements under the CARs, while allowing existing agreements to continue under the current regulations until their natural expiration.

The key objectives of this deregulation of the Commercial Agency rules are as follows:

• Simplify the legal landscape for B2B transactions.
• Reduce the time and resources spent on interpreting and enforcing the CARs in court.
• Enhance contractual freedom by reverting to pre-1993 common law principles.

This proposed change represents a significant shift in the regulatory landscape for Commercial Agents in the UK. It would mean that future contracts between Principals and Commercial Agents would be negotiated based on individual terms, without the statutory protections currently provided by the CARs, most notably the removal of post termination compensation, thus for prinicpals at least making the use of agents in their supply chain far more attractive. This parallels the existing situation for service contracts, which fall outside the scope of the CARs. While Principals would have greater flexibility in negotiating contract terms, agents - especially those without access to sophisticated legal advice—might face challenges due to the loss of statutory safeguards.

Next steps and key dates

The proposed deregulation will have no impact on existing agreements, which will remain regulated under the CARs. The deregulation will exclusively apply to new agreements. The UK Government is actively seeking input from businesses, trade associations, commercial agents, representative bodies, and consumers. A set of prescribed questions have been provided, though additional comments and evidence are also welcome.

• 16 May 2024: Consultation launched by the DBT.
• 11 July 2024: Deadline for responses to the consultation.
• Post-Consultation: The DBT will review responses, and the Regulatory Policy Committee will assess the proposals before any legislative changes are made.