The prospect of continuing trading uncertainty can raise the question of whether your distributors and agents are performing as you want them to perform or could be doing better. In turn, this raises the question of whether your business would do better by replacing any of your distributors or agents. If so, often the answer is to be found in performance management.
If performance management goes well and things turn around, it can be that the performance of the distributor or agent has improved and no further action is need. Alternatively, performance management can provide you with the way forward to terminate the distributor or agency agreement and avoid a claim for some form of compensation.
The basis of performance management is the agreement which you have, whether it is with the distributor or the agent. If it has been drafted to protect your interests, the agreement should impose a raft of duties on the distributor or agent. But it is not simply an issue of going through the duties and obligations and requiring the distributor or agent to fulfil them. Thought is needed both in terms of what you are seeking to achieve and how it is to be achieved.
If it is a case of using performance management to result in an excuse to terminate the distributorship or agency agreement, it is important that a paper trail is laid. Equally, it is important that what is sought from the distributor or agent is reasonable both in terms of scope and time.
Certainly in the case of an agent, a repeated failure to comply with your reasonable requests can result in you being able to take advantage of the Commercial Agents Regulations (the law which protects agents) to avoid making a statutory compensation payment or reduce the amount which is paid in settlement. Similarly, in the case of a distributor.
While English law does not provide expressly the same type of special protection given to agents, judgments given in a number of cases involving distributorship agreements have hinted at such protection being given to terminated distributors. Equally, the laws of a number of other countries – both within and outside the EU – provide special protection for distributors in a way which is directly analogous to that of agents.
Even without this special protection, failure to properly performance manage a distributor can result in the distributor having a claim for damages for wrongful termination of the distributorship agreement.
So crunch time: think about how you are going to get to where you want to be, so far as your distributor or agent is concerned. Equally, it is important to give thought to how you are going to service the customers in the distributor or agent’s territory following termination.
Finally, take care. While it is open to you to performance manage underperforming distributors or agents, it is equally open to savvy distributors and agents to performance manage their suppliers and principals so as to engineer an exit from the distributorship or agency agreement to the maximum advantage of the distributor or agent.
© 2018 Fox Williams LLP