19 March 2019 #Dispute Resolution
A recent decision of the European Court of Justice has clarified the circumstances in which an agent will be classified as a commercial agent for the purpose of the Commercial Agents (Council Directive) Regulations 1993. Commercial agents benefit from important protection under the Regulations, including the right to compensation on termination of the agency arrangement.
There are three principal conditions set out in the European Directive on which the Regulations are based. The agent must:
The Regulations also provide that the agent’s commercial agency activities must not be secondary to any other activities he undertakes.
In Zako SPRL v Sanidel SA, Zako was responsible for the kitchen department within Sanidel, a kitchen and bathrooms business operating in Belgium. Zako was an independent company, and it received a monthly retainer and commission based on kitchen sales.
A dispute arose as to whether Zako was a commercial agent for the purpose of the Belgian equivalent of the Regulations. Zako’s representative worked from Sanidel’s premises, where he had a permanent work station, a direct telephone line and a Sanidel email address. As well as negotiating and concluding kitchen sales on behalf of Sanidel, Zako was also responsible for a number of other activities, including managing Sanidel staff in the kitchen department, drafting kitchen plans and taking measurements. However, it was common ground between the parties that Zako had complete independence and autonomy.
The ECJ decided that the fact that Zako worked from Sanidel’s premises and carried out other activities for Sanidel, including managing its staff, did not preclude it from being a commercial agent. There is no requirement in the Directive that a commercial agent must not work from his principal’s premises.
The court said that these were relevant factors, because the fact that an agent is so integrated into his principal’s organisation might lead to a conclusion that he is not a truly self-employed agent, independent of the principal, but rather is an employee. However, on the facts of the case, Zako was a fully autonomous, independent agent, despite its working practices.
Whilst this case provides some useful clarification, we recommend that any agents or principals who are not sure if their arrangement falls within the Regulations should take legal advice at an early stage (ideally before termination is an issue) so that they can be sure of their rights and obligations, and plan appropriately for the future.