The Commercial Agents (Council Directive) Regulations 1993 (“CARs”) have now been in force for over 30 years and, despite recent discussion around reform, they remain firmly in place in Great Britain. As recently as February 2025, the government confirmed there would be no change.
For businesses using self‑employed sales agents, the key takeaway is simple: if the CARs apply, they carry significant legal and financial consequences, particularly when the relationship ends.
Why businesses need to pay attention
One of the most important (and often overlooked) features of the CARs is that they can apply regardless of what the contract says or whether there is a written contract at all.
Even where an agreement is labelled as a consultancy or introducer arrangement, the courts will look at the reality of the relationship. If that relationship falls within the definition of a commercial agency, the statutory regime will apply automatically.
Crucially, many of the protections given to agents cannot be contracted out of in advance. That means businesses may only discover the true impact of the CARs at the point of termination, when liabilities crystallise.
What is a commercial agent?
A commercial agent is broadly a self-employed intermediary with ongoing authority to:
- negotiate the sale or purchase of goods on behalf of a principal; and/or
- conclude contracts in the principal’s name
This definition is wide and can include individuals, partnerships and companies.
However, the scope of the CARs is limited to goods, not services. This distinction is often determinative.
Goods vs services: why it matters
The boundary between goods and services can be difficult in modern commercial arrangements, for example in the technology sector.
In Kompaktwerk GmbH v LivePerson Netherlands B.V. (2024), the High Court confirmed that a time-limited SaaS subscription did not amount to “goods” for the purposes of the CARs. The court emphasised:
- there was no permanent transfer of ownership; and
- the substance of the arrangement was access to software, i.e. a service.
While helpful, this case does not eliminate uncertainty. Many hybrid or evolving business models still sit in a grey area.
The key point for businesses is that classification is critical: if the arrangement involves goods, the CARs may apply in full; if it is purely services, they will not.
The real issue: termination exposure
While the CARs regulate aspects of the ongoing relationship, a significant risk arises on termination. This is where businesses often face unexpected and potentially substantial liabilities.
If the CARs apply, agents may be entitled to:
1. A termination payment
On termination, an agent is typically entitled to either:
- compensation (often calculated by reference to the value of the agency, sometimes equating to a multiple of annual commission); or
- an indemnity (this is a capped amount which aims to reflect the value an agent has created for the principal)
It is generally the case that the termination payment being paid on an indemnity basis is preferred to that of a compensation basis. In the absence of express drafting, compensation will be the default position, and this can be costly.
2. Ongoing commission rights
Agents may be entitled to commission:
- on deals concluded after termination; or
- where orders are attributable to their prior efforts
This can create continuing financial exposure even after the relationship has ended.
3. Minimum notice periods
For open-ended agreements, statutory minimum notice periods apply, increasing with the length of the relationship. Failure to comply can give rise to additional claims.
Duties during the relationship
The CARs also impose mutual duties, which often become relevant in disputes:
- Agents must act in good faith, follow reasonable instructions and protect the principal’s interests.
- Principals must provide necessary information, keep the agent informed, and act in good faith.
Failures on either side can feed into disputes about entitlement, particularly around commission and termination payments.
Written agreements: still essential
Although a written contract is not required for the CARs to apply, clear documentation remains vital.
A well-drafted agreement can:
- clarify whether an indemnity (rather than compensation) applies.
- set out commission structures and triggers.
- define the scope of authority.
- reduce ambiguity around termination.
Without this, businesses leave themselves exposed to uncertainty and potentially unfavourable statutory defaults.
Practical takeaway
The key message for businesses is not simply to understand what the CARs are but to recognise when they apply and what that means in practice.
- Do not assume an arrangement falls outside the CARs because of how it is labelled.
- Do not assume a lack of written agreement avoids the regime.
- Most importantly, do not underestimate the financial impact on termination.
Where commercial agents are used, the question should always be asked at the outset:
If the CARs apply here, what will this cost us when the relationship ends?
Addressing that question early, through proper classification and careful drafting, can prevent significant and unexpected liabilities later.