Termination in commercial agency is not always mutual, thus questions of rights and entitlement to compensation tend to arise. Generally, the agent, who is considered the more vulnerable party, is intended to be the more protected. However, liability for termination can extend to both the principal and the agent.
Termination of an agency agreement formally occurs during the contractually agreed date, or automatically at the end of a fixed term agreement. However, agreements entered into for an indefinite period of time can provide for an opportunity of early termination, subject to certain qualifications.
When contemplating early termination of an agency agreement, either party can do so providing they comply with the contractual notice period. The length of this notice period is dependent on the duration of the agency agreement itself, the longer the contract, the longer the period of notice. This is reflected In practice, with the first year of a contract requiring a notice period of no less than one month and no less than two months for the second year. Any subsequent periods after this usually must adhere to a three month notice period. The parties themselves can agree to longer notice periods if necessary.
A commercial agency agreement may be immediately terminated in light of a serious breach of contract. This breach, must be of a substantial nature and have a serious impact on the operation or results of the agency agreement. It is allowed both when contractually permitted or when it would be considered unreasonable for the agency agreement to continue. This decision and its reasoning, must be immediately communicated to the other party. However, if this course of action is taken absent sufficient justification, then it will likely give rise to a claim of damages.
The possibility for sub-agents to claim compensation in the event of termination very much depends on the facts and circumstances in question. In practical terms, a sub-agents’ agreement is between himself and the primary commercial agent. The principal has limited contractual connection to the sub-agent and as such, is not likely to be liable for their losses. However, this can differ depending on the arrangements agreed in the contract between all the actors involved. For sub-agents, this could provide a direct route to claim compensation from the principle, but more likely, will involve the sub-agent claiming a part of the compensation awarded to the main agent by the principal.
In the event of premature termination or termination without due cause, then the principal will be required to make post-termination payments to the agent, for losses sustained from their investment in the agreement. The exact sum of this compensation should be equal to the remuneration that would have been granted for the remainder of the agreement, up until a termination reached through a consensus of the parties. This basis would be calculated by the commission earned in the previous years of the agency engagement.