Is The Restraint Of Trade Clause In My Agency Agreement Enforceable?

• Jurisdiction: European Union
• Law Firm: Myerson Solicitors LLP
• Subject Matter: Employment and HR, Contract of Employment
• Author: Myerson Solicitors LLP
• Published date: 09 May 2023

Since the introduction of the Commercial Agents (Council Directive) Regulations ('the Regulations') in 1993, commercial agents have long since benefitted from an extra layer of statutory protection than those afforded to employees.

The Regulations were introduced to ensure that the law of agency in the UK was aligned with other EU Member States.

Since the UK's departure from the Common Market, the Regulations continue to have effect in the UK as retained EU law.

The Regulations provide a statutory framework for any agreement between a principal and its commercial agent. They confer duties upon both principals and agents.

They also allow agents to receive compensation (on either the 'compensation' or 'indemnity' basis) on termination of the agency agreement, save in certain circumstances.

As with a contract of employment, principals will often seek to protect their interests by including restrictive covenants to restrain the activities of a commercial agent upon the termination of an agreement.

Regulation 20 sets out the requirements for any post-termination restrictions to be valid.

This article considers the common law position concerning restraint of trade and sets out the parameters prescribed by Regulation 20, which will both apply to a commercial agency agreement that is governed by English law.

Restraint of Trade - The Position at Common Law

Although it is well established that the doctrine of restraint of trade applies to covenants in employment contracts and between buyers and sellers of a company, the position is slightly more nuanced where the commercial agency is concerned.

While restrictions during the lifetime of the agreement are likely to be deemed acceptable, more caution is required with post-termination covenants.

The courts look at the parties' relationship and consider whether it is analogous to an employment relationship.

Where the doctrine of restraint of trade applies, clauses which seek to restrict trade are regarded as void (and therefore...