Government reveals the Commercial Agents Regulations are here to stay

The consultation

In May 2024, the government launched a consultation about the Commercial Agents (Council Directive) Regulations 1993 (CARs), which are assimilated EU law. The then Conservative government was considering bringing forward legislation which would mean that new commercial agents would not be subject to the CARs. This was part of the government's review of EU legislation post Brexit.

When the Labour party came into power in July 2024, the consultation on the CARs was extended. In parallel, the Labour government announced that it wanted to reset the relationship with European partners.

On 13 February 2025, the Department for Business and Trade (DBT) confirmed that the CARs will remain in force without amendment. During the consultation, responses from agents highlighted concerns that abolishing the CARs could create difficulties for agents negotiating with principals who are often larger businesses and often based in the EU. Agents also raised concerns that disapplying the CARs for new commercial agents could result in fewer people joining the profession of commercial agent. The government response found that overall, the CARs work well for commercial agents and there was not a strong case for change.

Background to the CARs

The CARs regulate the contract between a business (the principal) and a commercial agent. The CARs apply to commercial agents, who are self-employed intermediaries, with authority to deal with the sale or purchase of goods on behalf of a principal. The CARs do not apply to the supply of services. Where the CARs apply, they impose certain mandatory terms which generally apply to the benefit of the agent. This includes:

• Written statement of terms: a right for the agent to receive written contract terms.
• Compensation or Indemnity payment on termination: the agent has the right to receive a payment when the principal terminates the contract. The way the CARs work in the UK, the parties need to choose which applies in the contract. Otherwise a compensation payment applies (often seen as the less preferred option since the indemnity option has a cap). This principle, originating from German law, ensures that agents receive a payment upon termination of their contract for helping grow the principal's business. Historically this aspect of the CARs has proven to be problematic for principals and it is crucial to get it right.
• Minimum notice periods for termination: certain minimum notice periods apply where the agency contract is of indefinite duration or has become a rolling contract.
• Provisions relating to remuneration and commission: the CARs contain detailed provisions around when and how remuneration or commission must be paid to the agent.

Result of the consultation

Following the DBT announcement, we know that the CARs are here to stay. This is likely to be good news for agents since the consultation revealed that agents felt that the CARs offered important protections when working with principals. Conversely, principals said that the CARs are heavily weighted in favour of commercial agents, creating an unequal business relationship. Principals said that the CARs impede negotiations and can make it difficult to terminate an underperforming agent. They may be less pleased with the DBT announcement. The compensation and indemnity payment on termination is often seen by principals as being burdensome.

What happens next?

Whether businesses are for or against the CARs, we at least have certainty that they apply to commercial agency arrangements. Businesses must therefore continue to reflect the requirements of the CARs in their commercial agency contracts. They should take legal advice to make sure they understand the requirements and consequences of the CARs and are compliant with their requirements.

Businesses which had been waiting for the outcome of the consultation to evaluate their route to market strategy can now move forward with this.

Commercial agents and SaaS

Businesses operating in the technology sector should also be aware of the Kompaktwerk v LivePerson Netherlands BV [2024] WLR(D) 47 case from 2024 in the English Commercial Court. In that case, a time-limited subscription to software-as-a-service (SaaS) was found not to be a sale of goods for the purposes of the CARs. So, for now at least, agents marketing time limited SaaS subscriptions are not commercial agents. Principals and agents will need to keep aware of what may be considered 'goods' for the purposes of the CARs, especially considering the changing digital space.

Do you want to know more about the outcome of the government consultation or get advice about your commercial agency arrangements?

Simply reach out to Sarah Daun.

This article is also authored by Jade Wadey, Trainee Solicitor at Womble Bond Dickinson.