First thing's first: let's talk About the term "agency" in law
When it comes to business, we often hear terms like "agent" and "agency" thrown around. But here's the thing: they don't always match up with what the law says about agency. Sure, courts and businesses use these words a lot, but they don't always mean the same thing in the eyes of the law...
In legal terms, an agency relationship usually starts with a contract between a principal and an agent, which is usually governed by a contract. But in real-life business situations, what we call an "agent" is often not a true "agent" at all – but another company who is creating or doing something for a client such as design work, branding, IT, advertising or something else. In these types of arrangements, the "agent" is unlikely to have the power to make binding deals on the client's behalf like a true agent would.
Let's explain further
To further explain the difference between the two, we will give them different names. The first, which is the true agency relationship, we will call "legal agents". The second, we will call "agency type arrangements".
Legal agents are people who step into the shoes of the principal, making decisions on their behalf and dealing with third parties on their behalf. In agency type arrangements, the company or person being paid does not deal with third parties on behalf of the client or make decisions in place of the client – instead, they are instructed to create or do something for the client, perhaps on commission or under specific direction (in this way, they differ from straightforward suppliers, who may be supplying an off-the-shelf product or service).
Dealing firstly with legal agents, an example people are likely to be familiar with is hiring an estate agent to sell your house for you: they advertise your house, show people around, negotiate offers and otherwise deal with potential buyers. That is not to say that they do need to seek your consent throughout the process – they almost certainly will be required to do that under the terms of your contract. The estate agent is a "legal agent", because they step into your shoes, and make decisions as if they were you.
In a business context, a "legal agent" will act on behalf of a business, performing a task that the business does not have either the time, resources or personnel to carry out itself. They may be responsible for crucial business functions such as:
- Hiring new staff members on either a temporary or permanent basis through recruitment agencies
- Increasing awareness of your company and its brand, engaging with audiences and attracting more customers through marketing and promotional agencies
- Contacting customers directly or answering inbound enquiries to facilitate selling products and services through sales agents
But most of our clients at Biztech work differently, they prefer to handle sales deals directly with customers, rather than paying someone to do it for them. The sorts of arrangements they are more likely to need help with are "agency type arrangements": contracts between design agencies, IT consultancies or marketing agencies and customers. These are not agents in the same sense – they are not making decisions on behalf of clients, they are doing work for clients.
To illustrate the distinction between "legal agents" and "agency type arrangements" further, we have set out some of the examples discussed above in a table:
| Legal agents | Agency type arrangements |
|---|---|
| An ad agency buying space for a client – acts on behalf of the client, making decisions on their behalf | A design agency paid to create branding for a business – does not deal with third parties for the client, or act on their behalf |
| A salesperson negotiating deals on behalf of a company – acts on behalf of the client, making decisions on their behalf | An IT consultancy paid to contribute to a company's existing team, or provide IT support services – does not deal with third parties for the client, or act on their behalf |
| A recruitment agency hiring staff for a business – acts on behalf of the client, making decisions on their behalf | A marketing agency hired to assist a law firm – does not deal with third parties for the client, or act on their behalf |
What do businesses instructing "legal agents" need, and
what if – instead – I am dealing with an "agency
type arrangement"?
The good news is that both legal agents and businesses entering into agency type agreements are very likely to need the same thing: a well drafted contract that sets out exactly what each party is responsible for, what it will cost, and some other key requirements.
As a tech business, you may need contracts for your legal agents, as well as contracts for your IT consultant or design agency. If you have set up your own agency or have been asked by a company to act as their legal agent, you may need somebody to look over the contract for you.
In either case, the reason for entering into a contract is to:
Define the business transaction—the contract should set out the basis of your business transaction and the details of the arrangement; this ensures that both parties know where they stand and understand what is expected of them.
Provide legal backing—having a written agreement with your "agent" (whether that's a legal agent or an agency-type arrangement) provides a binding document that acts as a fallback should there be any issues in the future or breaches of contract – this gives both you and your agent a certain level of protection and allows you to take up matters with the courts in the event of a significant failure to comply with the terms of an agreement that affects your tech business.
Mitigate risk—apart from minimizing your exposure to the risk of legal challenges in the courts by having a clearly set out agency agreement, it can also further reduce risks by allowing you to anticipate potential events or issues in the future and make provisions within the agreement to deal with these ahead of time.
Improve relations—having a clearly set out agreement between you and the agent/business helps to build and maintain a healthy business relationship, with both parties aware of their obligations and where they stand. Also from an outside perspective, e.g. auditors and investors, it sheds more of a positive light on your tech company if you have detailed written agreements for any commercial interactions.
How to create a good agency agreement that works for your technology company
Whether you are dealing with a true "legal agent", or an "agency type arrangement", the agreement should set out:
Names and addresses—full legal name and address for both parties. This confirms out who is bound by the agreement, and establishes a physical point of contact in case of any legal disputes or other formal issues you may need to contact each other about.
Definition of the work required—provide full details of the project and what is needed from the agent or company you are paying – which services should be provided, what results you expect and what terms you have agreed upon.
Duration of the contract—clearly define when the contract will start and end with the specific timeframe contained within the agency agreement.
Payment terms—when drafting an agency agreement it is very important to set out a clear payment schedule including when and how the transaction will be made.
Termination clause—following the payment section you should include notice for early termination of the contract under particular circumstances, for example, breach of contract or not performing specified duties as outlined in the agency agreement.
Confidentiality clause or NDA—here, you can state which information related to your technology business should remain confidential and not be disclosed by the other party. This could be any aspect of your strategy, methods, technology/software used or details of the work itself that you wish to remain confidential. This can be further enforced with an NDA, or non-disclosure agreement, for the agent to sign.
Liability clauses— you can outline your agent's liability for any loss or damage resulting from failure to comply with the agreement. You may also seek indemnities to cover things like breach of confidence.
Is there anything specific that I should consider in an agreement with a "legal agent"?
Yes. If you are appointing a recruitment agent or other type of true agent to make step into your shoes and act on your behalf, in addition to the clauses mentioned above you should consider the following:
Approval process or control—in one of the examples above, we talked about estate agents acting on your behalf to sell your house. In that situation, you would definitely want a say on which offer to accept, whether to negotiate on price, timescales for moving out and so on. The agent cannot simply agree to everything without checking with you first. Similarly, in a business context, you will want a say on (for example) which candidate to select in a recruitment process. Setting out very clearly when your agent needs to seek your approval is an important aspect of true agency agreements.
Commission—if your agent is going to earn commission for, say, recruiting candidates on your behalf, the contract should set out very clearly how the payment structure will work.
Is there anything specific that I should consider in an agency type arrangement?
Again, yes! In contracts with design agencies, IT suppliers, marketing agencies, digital transformation agencies or any other business supplying these types of services you should also consider:
Ownership of copyright and other intellectual property rights—if the agency is generating intellectual assets such as content, designs, software, etc., it is important to declare who owns what and which party will retain copyright, rights in inventions, trade mark rights and other intellectual property rights.
Non-solicitation clauses—if you are concerned that the agency may seek to recruit your own employees, consider a clause preventing them from doing this.
Legal support for tech business agency agreements
If you have any questions or are looking for expert legal help when drafting your own agency agreements (of either type!), get in touch with commercial law specialists to provide assistance where needed.
At Biztech Lawyers we lend our expertise in commercial and contract law to ensure our clients in the tech industry get the best arrangement possible from any agency agreement or employment contract. We provide technology-based businesses with the means to facilitate a healthy interaction with any agencies they work with, helping to build and maintain strong relationships.
Our industry experts can help you draft documents that align with the goals of your business and review any important paperwork that you need to sign to ascertain that the best interests of your tech company will be upheld.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.