When appointing a commercial agent, not only does very careful consideration need to be given to the provisions of the Commercial Agents' Regulations ("Regulations"), but also to the terms governing the ongoing relationship in order to address possible TUPE implications on termination of the agent's appointment.

Notwithstanding the dangers of the "compensation" principle on termination, use of commercial agents can avoid the liabilities that otherwise arise under the employer/employee relationship. However, every silver lining has a dark cloud since employment issues and TUPE obligations can also arise.

Suppose the agent, in order to fulfil the terms of the agency agreement (or to create a poison pill on termination) decides to employ a number of employees to fulfil the agency contract. The employees are employed by the agent, so where is the mischief?

On termination of the agency contract and the appointment of either a new agent or the principal bringing the services "in house", the employees of the agent will be able to say that there has been a "service provision change" under TUPE so that their contracts of employment automatically transfer to the new agent or to the company (as well as triggering the employee liability information and possible consultation obligations) - told you it was a dark cloud! Not only will the principal have an obligation to pay the agent the compensation or indemnity payment due to it under the Regulations, it may find that it, or its new agent, inherits the employees of the original agent.

In order to avoid such a disruptive and potentially expensive situation, the terms of the contract with the commercial agent should ensure that the agent (if an individual) does not have the authority to appoint employees to work on the services provided to the principal. Alternatively, that any employees employed by the agent are "rotated" so that, on any termination of the agency agreement, the agent's employees cannot claim that they are "assigned" (under TUPE) to work on the contract that the agent has with the principal ("rotation" may also be appropriate if the agent is a corporate entity with existing employees); or, if such employees are to be "assigned", that the agent gives appropriate indemnities in respect of any liability the principal or new agent may incur if it decides to dismiss the inherited employees.