Effective cause: a case study

This case study touches on a key theme of agency law and fees – whether the agency can prove that its work was the ‘effective cause’ of the client’s hire of the candidate.  It’s an issue that we regularly help our clients with, both agencies and clients of agencies.

The challenge

Under well-established agency law, an agency (whether estate agency, recruitment agency or other) that is demanding its fee from a client needs to prove that its work was the effective cause of the transaction taking place.  There are a couple of well-known cases involving estate agents but the principles are directly applicable to recruitment agencies too.

The law allows the parties to a B2B contract to agree terms of business that override this orthodox ‘effective cause’ rule, and many well-written, modern terms used by recruitment agencies do this nowadays.  Their clients need to take a business-like ‘buyer beware’ approach (or caveat emptor if we’re allowed just a little bit of legal Latin).

But there are still many agencies whose terms of business don’t override ‘effective cause’ and in such circumstances that fact can come to the aid of either agency or their client, depending on the circumstances.

In this particular case, a long-standing employer client of ours had hired a manager who was a good, long-term friend of a senior executive in the business.  The recruitment agency had this person on their books as a candidate and had sent his CV to the client as part of a speculative approach.  The agency did not do more than send across the CV and certainly was not proactive in bringing about the hire.  The hire was undisputedly due to the long-term relationship between the candidate and the senior executive.

Despite its speculative approach to the client and its lack of any activity towards bringing about the hire, when the agency found out about the hire it demanded its fee.  It engaged a particularly aggressive law firm to pursue this, whose boorish Partner lectured us on the phone that his firm “does these cases all the time and always wins” and so our client should just roll over and pay up.

What happened?

Having got involved, our first action was to look at the agency’s terms of business and whether they had actually been accepted by our client in the eyes of the law.  They had been sent as a PDF attachment to the same email from the agency that had attached the candidate’s CV, and the terms said that as soon as the CV was read, the terms were deemed to be binding.  We felt there was some scope to argue in court that this ‘deeming’ provision was not necessarily effective, but in the end a stronger legal argument became apparent.  The agency’s terms, which appeared to have been taken from an REC template from a decade or so before, did not have sufficient wording in them to override the ‘effective cause’ rule.  This was very helpful indeed.

Outcomes for our client

Consequently we were able to put up a robust response to the agency’s aggressive quest for the fee, proving unequivocally that the one and only cause of the hire was the long-standing personal friendship.  It was helpful that the CV was never in fact forwarded to the director who decided the appointment – it remained sitting in the HR Manager’s email in-box.

Following this, it all went very quiet at the agency’s solicitors.  We heard nothing more.  A successful outcome for our client.

We are fully aware of the hard work that agencies often do to secure a portfolio of good candidates and the value in those candidates that rightly deserves to be protected by taking action against any unscrupulous clients who carry out a back-door hire.  However, speculatively sending a CV and then threatening to sue for the fee when that person is hired without any work or involvement between the agency and the client is, we feel, bad practice and brings the recruitment industry into disrepute.

Even if an agency has well-written terms of business that appear to override the ‘effective cause’ rule, our view is that it is often worth challenging the agency’s demand for the fee anyway, if it feels unreasonable.  Often a negotiated reduction can be achieved, simply in order to avoid court proceedings.  Or we might be able to find an argument that the terms were never ‘accepted’ in the eyes of the law in the first place.

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