Commercial Agents – is the grass really greener?

Wednesday 9 September 2015

Depending on which newspaper you read:

• the average British employer is forced to negotiate a legislative employment battlefield strewn with deadly land-mines laid by faceless, bureaucrats from Brussels (aka the European Parliament) or, by contrast

• even in 2015 the industrial landscape echoes to the values and habits of Victorian mill owners who force employees to work long hours on low pay, or put employees on zero-hours contracts where they are at their masters’ beck and call.

The truth probably lies somewhere between those two extreme views. But the fact remains that there are plenty of employers who resent what they perceive as the bureaucratic and financial burden of employment legislation, and who therefore cast around for an alternative legislative landscape where, hopefully, the grass is so much greener.

For the widget manufacturer or widget importer, the idea of having self-employed sales representatives must seem incredibly attractive. After all:

• A self-employed salesperson is paid by results. If no sales are achieved, then no commission is payable;

• Because a self-employed salesperson and his “boss” (in other words, the widget manufacturer or importer) are assumed to be contracting with one another at arms’ length, and with equal bargaining power, it is generally quite straightforward to impose post-termination restrictions on a self-employed salesperson and, vitally, to be able to enforce them;

• By definition, a self-employed salesperson is not entitled to salary. This means that the boss will only be required to make payments to a self-employed salesperson when that person has achieved sales. Further, the boss may be able to claw back commission in circumstances where a debt due from a customer goes bad;

• A self-employed salesperson will generally provide his or her own motor vehicle, and deal with expenses incurred in connection with the sales process; and

• A self-employed salesperson will not be entitled to sick pay, nor will the boss be required to make any pension provision.

But a self-employed salesperson will almost certainly be dubbed a “commercial agent” by the Commercial Agents (Council Directive) Regulations. Hang on a minute! “Directive”? Is that a whiff of Brussels which can be detected?  It certainly is.

The Regulations give commercial agents some minimum rights:

• A commercial agent is entitled to minimum notice (three months by the time the third year of the agency starts)

• If the principal (the agent’s “boss”) terminates the agency, even where the agent is a lacklustre performer, the agent will automatically be entitled to compensation;

• A commercial agent will generally be very much his own man (or woman) and so it may be more difficult to dictate to a commercial agent how and when the agent’s role is performed; and

• It is commonplace for a commercial agent to have more than one agency. That may make it difficult for a principal to require an agent to concentrate on the principal’s products, as opposed to the products of another principal.

To make matters worse, there have been instances where a principal’s control of a commercial agent has been so extensive as to persuade the Courts and Tribunals to conclude that, although not an employee, the commercial agent is in fact a worker.

The distinction is important. Whilst a worker has few of the rights which accompany employed status, a worker does have rights in relation to:

• Pension auto-enrolment (and how are the contributions to be calculated given the varying commission income of the agent?)

• Paid holiday (and, again, with the agent’s income varying with commission, just how is holiday pay to be calculated?), and

• Discrimination on the grounds relating to any of the usual “protected characteristics” (for example, sex, race, disability, sexual orientation, religion, belief and age).

In short, when it comes to appointing a commercial agent the grass is not as green as it seems. Using commercial agents may be right for your business but it is a decision which you should not make without first having taken advice.