Blog: Recruitment agency fee disputes

Luke Menzies, Director and Specialist Employment Lawyer at Menzies Law

In recent years we’ve advised several businesses who have been in dispute over a recruitment agency fee.  We’ve seen it from the client’s point of view, and also from that of the first agency who introduced a candidate and from the second agency’s side too.  It’s clear that this is an area of frequent dispute and it’s well worth all those in, and who work with, the recruitment industry being fully aware of the issues and how to both avoid them and to strengthen their position should a dispute arise.

The number of such cases that our firm is being asked to deal with has increased recently, so I thought it would be worthwhile to share some key points with you.

Scenarios

There are two particularly common scenarios that we tend to get asked to help with.

The first is the so-called ‘back-door’ hire, where a recruitment agency introduces a candidate to a client, the candidate is not hired at the time, but later on (usually a few months later) the hire does take place by direct contact between the client and the candidate, usually without the recruitment agency being aware until afterwards.  It then wants to claim its fee because its terms of business state that the fee is due if the candidate is hired by the client for any reason within a certain period (often 6 months) following the introduction.

The other common scenario is what I’m going to call the ‘fee fight’, where agency 1 introduces a candidate but no hire takes place (at that time).  Later (sometimes days, sometimes months), agency 2 introduces the same candidate to the same client and the hire takes place.  Agency 2 asks for its fee and invariably it is paid.  Agency 1 then gets to hear about the hire and demands its fee too, because its terms of business have the same sort of term as mentioned above.

In the first scenario, the client is sometimes being cheeky and may at least ‘morally’ owe the fee to its (former) agent.  In the second scenario, however, it’s often possible to have a lot more sympathy for the client because invariably it will have already paid a (usually substantial) fee to agency 2 and simply cannot afford to pay the same sort of amount to agency 1 as well.  Often the client has just been naïve and probably not spotted a dispute looming.

We’ve advised agencies and employers alike, and what I can say with confidence is that each case – and therefore the likely legal outcome – is different, each time.  Employers quite rightly don’t want to have to pay fees that aren’t legitimately due, but at the same time each candidate has an understandable value to a recruitment agency and it’s reasonable for the agencies to want to take certain steps to protect themselves.

Key points to be aware of

There are four key points that I would suggest both recruitment agents and their clients should be aware of here:

  1. Are an agent’s terms of business binding on the client?
  2. The law of “effective cause”.
  3. Whether an agent’s terms override the law of “effective cause”.
  4. It all usually turns on the client’s evidence.

Binding terms

This is good old, basic contract law.  In order for any terms of business to be binding , they have to be communicated to the client and accepted by the client.  Proving this is crucial to a successful claim for fees.

I’ve seen some recruitment agency terms of business that say their terms are binding as soon as the client reads the CV that has been attached to the same email as the terms, regardless of whether the ‘client’ is at all interested in working with that particular agent.

This is, to a lawyer’s mind, fairly aggressive wording and can produce ludicrous results if followed through on.  For example, that candidate may have already been introduced to the employer by another route.  In one case that we handled, the recruitment agency speculatively sent a client manager the CV of his best friend, and then expected to take its fee, even though they’d been talking about the possibility of working together for a while. (As Americans say, “I don’t think so!”)

Effective cause

This is a fundamental legal principle of agency relationships.  It means that, ordinarily, an agent can only demand a fee if it was the ‘effective cause’ of the hire.  Usually this is going to be obvious on the facts of the case, since the agent will usually have ascertained the client’s requirements, identified a candidate, arranged the interview and possibly a lot more.  But the facts of each case will be different and nothing can be taken for granted.

Overriding terms

I’ve seen some agents’ terms of business which (again, I think fairly ‘aggressively’) seek to override the ‘effective cause’ rule.  There is a general principle in contract law that express terms of a contract can override rules such as the ‘effective cause’ rule if the wording is clear enough.  It’s worth looking out for this.

Client’s evidence

Most disputes on recruitment agencies’ fees turn on the wording of their terms of business, whether these were binding on the client and then – crucially – how the hire of the candidate actually took place and what caused it.  That being the case, evidence from the client of what took place, including the trail of emails and their attachments, and the timeline of events relating to the candidate’s introduction, interview, salary negotiation, offer and acceptance can all be critical in deciding the legal outcome.

Practical tips

Clients: 

  • Appreciate the benefits of having a proper relationship with an established recruitment agency, where they provide you with an end-to-end service. Then delete all the speculative emails from rival recruiters that may find their way into your in-box, without reading the CVs that may be attached!
  • Take care to study a recruitment agent’s terms of business. Read them carefully and ask for written clarification of anything you don’t understand or which seems ambiguous (get the explanation in writing – verbal is not good enough).
  • When you do receive a CV from an agent you aren’t already working with, their terms of business attached, it’s very wise to immediately send a reply saying that you don’t accept their terms of business. This puts you in a very strong position when arguing later that you were not bound by these terms (even if they one of those aggressive clauses in them saying that they are binding on you without the need for you to accept them).
  • Keep good notes and all the email trails relating to when you received candidates’ CVs, when and how you reached your hire decisions, and all the other aspects of the recruitment process. You never know when any small piece of information might be useful – and possibly very valuable indeed – to you if a dispute arises later on.
  • It may be nice to chat to those friendly recruitment agents on the phone, but always, always confirm important aspects of the process in writing (email is fine) so that there can be no denying of certain things that were said on the phone if a dispute arises later.
  • If you get the slightest sniff of a potential fees fight, take action immediately to try to assess the situation and hopefully get an understanding (in writing) from the agents in question as to whose fee it is. Early action can be effective in preventing a proper dispute and threats of legal action.

Agents:

  • Don’t be a speculative spammer of employers. Establish the client relationship first and concentrate on doing the job properly.  You may not know it, but sending a speculative CV without engaging with the employer first can actually be a criminal offence.
  • Ensure your clients give you proper evidence that they have accepted your terms of business. Terms such as “You will be deemed to have accepted our terms of business if…” are not 100% watertight and you would be much better off if you ask each client to simply email you to say they have read and accepted your terms.  Nowadays, this is probably as good as them printing, signing and returning a hard copy.
  • I’ve seen a lot of poorly written terms of business. It’s really worthwhile spending a couple of hours with a friendly business lawyer to go through your terms and ensure that they mean what you think – and what you want – them to say.
  • Be aware that the more ‘aggressive’ terms of business, such as the ones I’ve described, may not necessarily be as watertight as you’d hope. You may be wasting time and effort, and possibly legal fees, in trying to force a client to pay up where – if it went to court – you wouldn’t actually have a strong case.  Pick your battles, get good legal advice early on, and be reasonable.
  • Equally, don’t be afraid to pipe up where you feel you’ve clearly been shafted, and demand what you think is rightfully yours. You may have worked hard to place each candidate on your books and that value is worth protecting.  There are definitely unscrupulous employers out there who eagerly look for ways to wriggle out of having to pay your reasonable fee.  Take an hour or so of legal advice early on (which shouldn’t cost you more than £300) so that you know exactly where you stand.
  • Some agencies charge a higher fee in a ‘back-door’ hire scenario than for a standard hire. This can be lawful, so long as your terms and the size of the fee is carefully considered.  Another good reason to obtain some decent legal advice when reviewing your terms.
  • I believe that a lot comes down to agents needing to establish a proper professional working relationship with the client first, so that you are clearly working together on the hire. Sending speculative CVs to employers who have never heard of you is bound to make it hard for you to demand a fee.

Everyone:

  • Fee disputes invariably end in some form of compromise or settlement and that’s usually the best for all parties. Actually going to court should, these days, be a last resort – since costs are high and the outcomes always uncertain, even if you believe you have a strong case.  If you do go to the court, the court rules and the judges are nowadays focussed on promoting mediation and the court cost rules actually penalise parties who fight on regardless.  Keep in mind the bigger picture and be prepared to be reasonable and find a deal.

Whether you are a recruitment agency or the client of one, if you are in any sort of fee dispute or wish to avoid them, do please get in touch and learn how we can help.

Luke Menzies

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