An unconscionable fee: a case study

This case illustrates some of the work we regularly do for usually small employers who find themselves in a difficult position regarding a recruitment agency’s fees.

It is a situation which is more common than you might think, and we have had three similar situations with other clients on the same point recently.

The challenge

Our client was a small specialist consultancy business in a niche area.  It decided to hire a new consultant in an employed role and engaged a recruitment agency to help.  The agency offered up a number of candidates, including Tom.  Its terms of business required a fee worth 20% of the role’s annual salary (which was £75,000 p.a.) upon engagement and the usual type of ‘anti-back-door hire’ clause which said that the client would still owe this fee if it engaged within 12 months any candidate put forward by the agency even if it was a direct hire without the agency’s involvement.

After interviews, our client decided that unfortunately none of the candidates were what they were looking for, although Tom came the closest.  So they decided not to appoint anyone.

A month later, Tom came directly back to our client with a request.  He was in a difficult financial position, having just lost his job and with a family to support.  He was in bad need of some income to tide him over until another job offer in the pipeline hopefully came to fruition.  He was a nice chap in a tough spot and our client felt sorry for him.  It found that it could offer him a week’s work as a self-employed contractor to help him out.  So it took him on for that one week of work, for which it paid him £1,800 (roughly the same rate of pay as that of the unfilled role).  Tom then moved on and that was the end of their relationship.

As you will have guessed, the recruitment agency found out about this engagement and demanded its fee, being £15,000 (20% of £75k).  Our client went up the wall.

What needed to happen?

This was when our client first contacted us, having found out about us and our expertise in this area via a Google search.  It was both angry at the agency’s fee and also very anxious to find a way out.

Our view was that if only our client had chosen proactively to contact the agency and explain the situation in the first place, they might have found the agency sympathetic.  From the agency’s point of view, these sorts of secret back-door hires are something they need to stand firm against to protect their business.

Unlike in consumer law, where a member of the public has some protection from certain unreasonable terms of business, this is not the case in B2B agreements, where more or less ‘anything goes’ if it’s written into the terms and they can be proved to have been accepted by the client.

Outcomes for our client

Having got involved, we advised our client that, technically, the agency was indeed due its £15,000 fee even though the hire only lasted a week and was merely a charitable act to help out someone in a fix.  The anti-back-door hire clause in the agency’s terms was clear, well-written and didn’t allow for any reduction due to these special circumstances.  With our client’s agreement we contacted the agency and explained that there was no way it was going to get paid what it was asking for and that it needed to be realistic and ‘human’ about the situation.  We insisted that pragmatism had to win out.

After some difficult back-and-forth with the agency, we were eventually able to negotiate with someone sufficiently senior at the agency who was able to take a sensible view and we were able to negotiate the fee down to just 20% of the £1,800 that Tom had actually been paid.

While this seems the right and obvious outcome, it was notable that the agency, which was a large and highly commercial one, was resistant to this solution for a surprising amount of time.  Admittedly they were technically ‘in the right’ in terms of what their terms of business required, but clearly it would have been pretty outrageous if they had been successful in extracting the full £15k from our client.

We felt the outcome was a fair one for all involved.  The agency had taken a 20% cut and made its point.  Its aims of protecting its business and indeed the recruitment industry as a whole had been achieved.  We saved our client £14,640 out of a £15,000 bill and it certainly learnt the lesson about reading suppliers’ terms of business carefully and the benefits of open and up-front business dealings.  A fair outcome all round.

Whatever your situation, we’d be pleased to help – .