Engaging Persons with Employee Status versus Commercial Agents

Employment Law

6 November 2013 by McKeever Solicitors
Engaging Persons with Employee Status versus Commercial Agents

Companies establishing a subsidiary in Ireland or companies in a start-up situation naturally are concerned to minimise costs. They must decide whether it Is is more advantageous to engage employees from day one or engage persons as self-employed intermediaries.

The decision has to be made as to whether they should engage employees from day one or whether it is more advantageous to engage persons as self-employed intermediaries, particularly in circumstances where products are being sold.

I set out below points for consideration in coming to a decision whether to take on persons as employees or as commercial agents.

Points For Employee

  1. More control over the persons as employees.
  2. A salary structure can be put in place with a basic salary and commission on work introduced but keeping outside the terms of the EU Directive on Commercial Agents.
  3. You can restrain the employee for a period from competing against you after he leaves your employment.
  4. The intellectual property in the employees customers’ sales list is yours and not the employees.
  5. As the employee would not be “a self-employed intermediary” the Commercial Agents EU Directive would not apply.
  6. Having employees may assist in establishing the tax status of your proposed company.

Points Against

  1. The administration needed to administer the employees.
  2. The need to deduct tax PAYE (“Pay As You earn”), PRSI (“Pay Related Social Insurance”), USC (“Universal Social Charge”) etc.
  3. Duties to provide a safe environment for work.
  4. May create extra costs in employer’s insurance and expenses, although the expenses can be deducted before any commission paid as part of the employment contract.
  5. It can be difficult to terminate an employment contract unless there is good and sufficient reason although you can have a fixed term contract to avoid the provisions of the Unfair Dismissals Act. This can only be done up to a cumulative period of 4 years.
  6. You must pay at least the minimum wage of €8.65 per hour.
  7. You must comply with employer’s duties to employee, such as safe place of work as above, holidays, parental leave, maternity entitlements, proper instruction, written terms of employment, records to be kept etc.

Advantages of Engaging Persons as Commercial Agent

  1. The Administration can be minimal.
  2. No deductions of tax PAYE, PRSI, USC etc.
  3. No necessary liability for the expenses incurred by the agent unless set out in the Contract.
  4. Only requirement to make payment when sales have been effected.

Disadvantages of Engaging Persons as Commercial Agent

  1. The agent’s commercial list of his contacts and customers belongs to him.
  2. The commercial agent shall be entitled to commission and transactions concluded after the agency contract has terminated if the transaction is mainly attributable to the commercial agent’s efforts during the period covered by agency contract and if the transaction was entered into within a reasonable period after that contract has terminated or if the order of the third party customer reached the principal or the commercial agent before the agency contract terminated.
  3. A commercial agent shall be entitled to commission on transactions concluded during the period covered by the agency contract where the agent has an exclusive right to a specific geographical area or group of customers and where the transaction has been entered into with a customer from that area or group.
  4. The commission shall be paid not later than on the last day of the month following the quarter in which it became due. The commission shall become due at the latest when the third party customer has executed his part of the transaction or should have done so if the principal had executed his part of the transaction as he should have.
  5. An agency contract for a fixed period which continues to be performed by both parties after that period has expired shall be deemed to be converted into an agency contract for an indefinite period.
  6. Under Articles 17 and 18 of the EU Directive , where an agency contract is for an indefinite period, either party may terminate it by notice. A Commercial Agent after termination of the agency contract is entitled to be indemnified on the basis of damages he suffers as a result of the termination of his relations with the principal. Such compensation for damage shall also rise where the agency contract is terminated as a result of the commercial agent’s death. However the indemnity in compensation shall not be payable where the principal has terminated the agency contract because of the fault attributable to the Commercial Agent which would justify immediate termination of the agency contract under national law and where the agent has terminated the agency contact (unless such termination is justified by circumstances attributable to the principal or on grounds of age, infirmity or illness of the commercial agent in consequence of which he cannot reasonably be required to continue his activities). The parties may not derogate from Articles 17 and 18 dealing with compensation where the principal has terminated the agency contract.

While it might be argued that the EU Directive does not apply in relation to software as the Directive refers to “goods”; in general, because there is inevitably some element of physical documents or products associated with software agreements they are viewed as likely to come within the meaning of goods as in the EU Directive.

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