By Mark Ellis

Many of you will be unaware of an obscure but important European law, which gives certain categories of self-employed workers (known as “commercial agents”) significant rights against you if they are “dismissed” by you.

A “commercial agent” is a self-employed intermediary who has authority to negotiate and conclude sales for you — for example, a self-employed travelling salesman.

If you decide that the relationship is not working and you “sack” the commercial agent then the agent is normally entitled to a large lump-sum payment reflecting the future value of their business.

In other words, upon termination of his/her contract with you the agent is entitled to a lump sum reflecting the value of their business, territory or client-base.

The theory underlying the sum due to the agent is that the agent contributes his/her skill and effort to developing the goodwill of your business during the course of the agency relationship, and that in doing so acquires a share in that goodwill!

Accordingly (so the theory goes) when the agency relationship comes to an end you have to buy out the agent's interest.

In a recent case, the House of Lords has stated that the value of the agent’s claim is equivalent to the resale value of their territory, i.e. how much another travelling salesman might pay to take over the territory and become entitled to the future commission or income stream.

Unlike unfair dismissal claims, entitlement to this sum is (almost) automatic - no unfairness in the dismissal needs to be shown.

The moral of the story: If you use the services of self-employed salesmen, take expert legal advice before giving the agent his or her marching orders.

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