Whether you are a company appointing a sales agent or an agent trying to understand the appointment you have been offered, the words exclusive, sole and non-exclusive matter a great deal, and they are often used loosely. This page brings together two pieces of guidance from Fox Williams on what each term means under English law, and on the practical issues to settle before an agreement is signed.
The core legal position has stayed consistent across both contributions below. Start with the quick answers, then read the full guidance for the detail and the drafting points.
Quick answers
In the absence of any other wording in the agency agreement, and within the specific territory, products or customers the appointment covers:
- Exclusive. The company cannot seek orders itself and cannot appoint any other agent within that scope.
- Sole. The company can still seek orders itself, but cannot appoint any other agent within that scope.
- Non-exclusive. The company can both seek orders itself and appoint other agents within that scope.
Two things override all of this: any other words written into the agreement, and how clearly the products, customers and territory are defined. Get those wrong and the label matters less than you might think.
Is an exclusive agent tied to a single company? No. Ex clusivity restricts what the company can do, not what the agent can do. Unless the agreement says otherwise, an exclusive agent can still represent other, non-competing principals. There is a separate limit to be aware of: competition law caps how far a principal can restrict an agent on price, customers or territory, and getting it wrong can make the restriction unlawful. See how competition law affects agency restrictions.
Exclusivity, sole, and nonexclusivity – what it can mean for you
Guest contribution by Fox Williams LLP, first published 16 November 2015. Reproduced in full below; one minor typo fix is noted in the changelog.
A key issue in the appointment of an agent is the extent of the appointment.
This is usually expressed in terms of the appointment being on an exclusive, sole, or non-exclusive basis. However, often these terms are used without careful consideration as to their legal meaning. Sometimes they are used and are then the subject of carveouts which may or may not achieve the principal’s objectives. In the absence of other words in the agency agreement, under English law an agent appointed on an exclusive basis will act as the agent of the principal in the territory, or in respect of the products, or in servicing specific customers stated in the agreement to the exclusion of the principal and any other agent of the principal. However, it is clear at this point that it is possible to include other words in the agreement which amend the extent of the exclusivity. In addition it is possible that exclusivity can be granted on a narrow basis by reference to a specific territory, product lines, or types of customer. Exclusivity can be contrasted with the appointment of an agent on a sole basis. Here, in the absence of other words, the principal will act alongside the agent again in respect of a specific territory, products, or customers. However, the principal is constrained from appointing other agents so to act.
The appointment of an agent on a sole basis in turn can be contrasted with a situation where the appointment is on a non-exclusive basis. A non-exclusive appointment can be compared to a free for all in that there is no restriction on the principal from appointing other agents in the absence of anything else being stated in the agency agreement. How then should a principal choose between exclusive, sole, and nonexclusive? The starting point is to identify the principal’s objectives for appointing the agent. Do any of the territory, products, or prospective customers lend themselves to a division between two or more agents? If division is applied, will each agent be sufficiently incentivised to act in a way which achieves the principal’s sales objectives – in terms of the aggregate value of orders, winning new customers, or exclusion of competing products? The principal also needs to bear in mind that as a general rule of thumb it is invariably easier to enlarge an agent’s geographical territory, products carried, or customer base than to reduce it. The only real contractual exception is where specific provisions are included in the agency agreement requiring the agent to achieve specific minimum sales requirements as well as providing for the taking away of parts of the territory, product base, or customers in the event that the agent fails to achieve a specific sales requirement.
A principal should also bear in mind the possibility of mixing and matching in terms of, for example, granting exclusivity in respect of certain products and nonexclusivity for all other products offered for sale by the principal. Neither the common law nor the Commercial Agents Regulations prevent such an arrangement being put in place. Equally, a principal should consider the issues of product updates, versions, and enhancements. Is the agent likely to be the right person for the new version? Does the update lend itself to a different medium for the particular market? Ultimately, thought given by a principal as to the extent of the appointment can only be for the principal’s advantage as it seeks to achieve business success by using agents.
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Disclaimer: This column does not contain legal advice and is for general guidance only. Agentbase, Fox Williams LLP and the writer accept no liability in connection with the general guidance given in this column. Please ensure that you obtain legal advice before acting in reliance upon anything in this article. For example, please be clear that the answers given in this column may not cover all possible angles, aspects, relevant considerations and/or points of law and so that all or any information which is given above needs in every instance to be referred for legal advice for clarification and amplification, before being relied upon.
Appointing an exclusive agent: what are the issues to look out for?
Guest contribution by Stephen Sidkin (Fox Williams LLP), first published 4 March 2020. Reproduced in full below.
There is an urban myth that if a company appoints a sales agent on an exclusive basis, the sales agent can act only for that company and for no other company.
The fact that this is an urban myth is shown by replacing:
“We appoint you as our exclusive sales agent” with “We grant you exclusivity”.
In other words, by granting a commercial agent exclusivity, the company is restricting itself from what it can do.
This self-restriction requires that consideration is given as to the extent of the exclusivity. All too often agency agreements provide simply for the commission only sales agent to be an exclusive agent for the sale of the company’s products in the territory.
The issues of uncertainty
However, granting exclusivity still leads to uncertainty in a number of respects.
Without further detail, what is to be the situation if the company:
- Extends the range of its existing product line?
- Puts onto the market replacement products for its existing product lines?
- Stops offering certain products for sale?
- Develops or acquires new product lines?
If the agency agreement is not clear about the target customers for the products, difficulties can arise. For example, will the sales agent be suitable for all target customers? Does the company wish to reserve certain customers to itself? Is it intended that the sales agent will be able to seek orders from the online channel?
Geographical consideration is the final issue of uncertainty. Countries and areas do change – for example, in terms of a sales agent whose territory is the European Union after Brexit. But what of the situation where:
- an order is obtained by a sales agent from a customer in one area;
- but the head office of the customer is in the territory of a different sales agent; and
- the goods are to be delivered to an address in the area of a third sales agent?
Exclusive v sole v non-exclusive
It would be reasonable for non-lawyers to hope that what is meant by “exclusive” would be clear in law. For example, as a result of having been defined in an Act of Parliament or judgment given by a court. The reality is that this is largely a false hope.
There is no Act of Parliament which defines “exclusive” in the context of agents. Further, such judgments as exist are old judgments concerned with the entitlement of estate agents to commission.
As such, it is normally considered that in the absence of other words in the agency agreement, the appointment of a sales agent on an exclusive basis means that the company appointing the sales agent cannot compete with the sales agent in the obtaining of orders. Nor can the company appoint other sales agents who compete with the first sales agent.
In contrast, if the sales agent is appointed on a sole basis (and again in the absence of other words in the sales agency agreement) the company appointing the sales agent can compete with the sales agent in the obtaining of orders for the company’s products. But, the company cannot appoint other sales agents to do so.
The third – and least common – type of appointment is where the sales agent is appointed on a non-exclusive basis. In this situation, the company appointing the sales agent is able to meet with the sales agent and appoint other sales agents to compete with the first agent in the obtaining of orders for the company’s products.
But, in respect of each type of appointment the overriding points are:
- whether or not there are other words in the sales agency agreement which may affect the extent of the sales agent’s appointment; and
- the need to specify clearly the products, customers, and territory which are the subjects of the appointment of the sales agent.
Why does all this matter?
The relationship between the principal and the sales agent should be a symbiotic relationship. The better the sales agent does, the better the principal does, and vice versa. But agents are protected significantly by law.
Accordingly, this all matters because, unless the sales agency agreement is drafted so as to maximise the sales agent’s performance and minimise the principal’s exposure, the principal can be left exposed when dealing with a sales agent’s claims:
- for commission; and
- in respect of the statutory rights to which a terminated sales agent is entitled.
Stephen Sidkin
T: 020 7614 2505 | F: 020 7614 1405
SlSidkin@foxwilliams.com
Stephen Sidkin is partner at Fox Williams LLP (www.agentlaw.co.uk)
© 2020 Fox Williams LLP
Further Reading
Exclusivity is one clause among several that decide how an agency works. For the full set, see what should be included in an agency contract.
Exclusivity cuts both ways: the principal’s freedom to appoint others, and the agent’s freedom to take on rival lines. For the agent’s side, see whether an agent can act for competing principals.