Introduction

1․ This is the government response to the consultation on the Commercial Agents (Council Directive) Regulations 1993 (CARs). We should like to thank all those that took the time to respond to the consultation.

Background

2․ The CARs came into force on 1 January 1994 and are derived from EU Directive 86/653/EEC. The CARs define the terms of engagement between a business (principals) and commercial agents. Commercial agents are self-employed intermediaries who have authority to negotiate the sale or purchase of goods on behalf of the principal. The regulations do not cover services. The regulations provide minimum rights for commercial agents in relation to any work they conduct for a principal, for example, rights of indemnity and compensation.

3․ Prior to 1994, if a principal-agent relationship based on UK law fell into dispute, the courts would rely on the specifics of the individual contract and the general law of agency to determine the case. The intention of the Commercial Agents Directive was to provide consistent protections for commercial agents when a contract between principal and commercial agent ends.

4․ The Retained EU Law (Revocation and Reform) Act 2023 provided an opportunity to review the effectiveness of these regulations and to ensure that they meet the needs of UK businesses.

5․ The consultation tested, in the case of new contracts, whether the CARs should be disapplied to new contracts entering into force after a certain date. The objective was to:

• simplify the UK’s legislative framework
• reduce court time spent interpreting these regulations
• make it simpler for businesses to contract with each other#
• allow the UK government to develop its own law in this area to meet its own needs

The consultation did not explore further options to amend the CARs.

How we consulted

6․ Prior to the consultation’s launch, we identified and spoke to key stakeholders including membership organisations, lawyers, and academics. The consultation was posted on GOV.UK, and a link was sent on to all those that had expressed an interest in the consultation beforehand. In addition, stakeholders reached out to their networks to encourage a wide range of responses. Respondents were invited to provide answers to the questions posed by Qualtrics – a data management tool. There was also an option to send in written answers.

Findings

7․ Eighty-six responses were received. Not all respondents answered every question. Those that responded were a mix of both large and small businesses, individuals, academics, and lawyers. Most respondents (70%) were commercial agents, all of which were sole traders, individuals, or small businesses with 1 to 49 employees. Seven respondents (8%) were principals, of which 57% identified as employing between 1 and 49 people.

8․ The consultation showed a polarisation of views – particularly between commercial agents and principals. Commercial agents valued the CARs for the security they provided when negotiating and ending contracts, and valued their role when negotiating with EU based principals. Some principals viewed the CARs as bureaucratic, preventing them from negotiating alternative terms with commercial agents, including lower terms on compensation and indemnity, than those set out. Those respondents that described themselves as ‘other’ were largely supportive of the CARs, citing the level playing field they afford when operating in EU markets. But they did highlight how they also do not allow for genuine contract formulation, introducing biases in favour of commercial agents.

9․ In particular, commercial agents and some other respondents explained that the CARs:

• provide protection against larger companies on the termination of contracts – particularly on the levels of compensation that may be payable
• function as a contract in the absence of one and, therefore, provide clarity
• provide a clear framework when engaging with principals
• function as a form of employment protection for sole traders
• could make it harder for them to negotiate contracts with principals
• could result in making the profession of commercial agents less attractive with fewer people joining it

10․ Some principals were critical of the CARs, arguing that they:

• are weighted in favour of commercial agents providing an unequal business relationship
• prevent principals’ ability to negotiate their own terms on compensation and indemnity
• can prevent the services of underperforming commercial agents from being terminated
• only apply to goods and not services contracts

11․ There was a split opinion of those describing themselves as ‘other.’ Some were supportive of the CARs because they:

• provide protections for small businesses when dealing with larger ones

• make it easier for contracts to be negotiated

• provide a level playing field when operating in EU markets

12․ Some describing themselves as ‘other’ were unsupportive of the CARs because they:

• do not allow for genuine contract formation

• create increased liabilities for principals

• are biased in favour of commercial agents

• are redundant because the UK is no longer a member of the EU

Government response

13․ Based on a careful review of the balance of the evidence, the government’s policy is that the CARs will remain in force without amendment. On balance, feedback from the consultation shows that the CARs work well for commercial agents and the regulations were well understood by respondents. They provide protections to commercial agents when negotiating contracts with principals who are, in many cases, businesses larger than the commercial agents themselves.

14․ Although a few principals did comment that the CARs did not allow for contracts to be negotiated freely between commercial agent and principal, there was not a sufficiently large body of evidence to suggest that this is a major issue and that there is a strong case for change.