Recruitment agency terms of business

Sterling Debt Recovery specialises in getting recruiters paid. Our debt collection team deals with hundreds of unpaid debts for recruiters each year. Whilst we collect the majority of debts referred to us, and in most cases we manage to do so without the need for legal action, weaknesses in our clients’ terms of business can sometimes damage our chances of collecting, or mean that we are not able to collect as much as our client should be entitled to.

The advice below covers some regular weaknesses we see in contracts. In particular there is a major failing in agreements used by most recruitment agencies which means that unscrupulous customers can get out of paying engagement fees altogether.

Loop-hole in standard recruitment agency contracts for perms

If, like the majority of recruitment agencies in the UK, you are using terms of business from one of the two leading associations, then you should be aware of a loop-hole in the terms.

Agreements from both of the leading recruitment sector associations state that the recruiter’s introduction must have led to the engagement, i.e. it must have been the ‘effective cause’ of the engagement.  The courts also imply such a clause into all agency agreements, unless it is expressly excluded.

It seems that the terms from the associations have been designed to create fairness for cases whereby two agencies introduce the same candidate. So the ‘effective cause’ clause means that the agency who can prove their introduction led to the engagement should get paid, and the other not. Whilst the intention is to create fairness, the result is a loop-hole that the debtor can use to their advantage. This has huge implications for the recruiter.

Implications of the ‘effective cause’ loop-hole for recruiters

It means that should the matter go to court, the recruiter must prove that it was their actions that directly led to the client hiring the candidate. The client can take advantage of this; they can use the excuse of another agency’s involvement, already knowing the candidate, direct contact after the introduction, or simply a delay between introduction and engagement. By using any of these excuses they can raise doubt as to whether the recruiter’s actions effectively led to the engagement. It is more common for the judge to side with the debtor in these cases.

To put it simply, if you have this clause in your agreement and/or fail to exclude the implied clause then in certain cases your client can use the loop-hole to get out of paying your fee. If your customer does not engage a strong lawyer then you may get lucky and get paid, but a good solicitor will do their utmost to find a legitimate reason for non-payment, and the loop-hole is there for them to exploit.

Tightening up recruitment terms of business

In order to protect against the scenarios above, recruiters should change their terms of business to close the loop-hole. Our solicitor has created a standard clause that can be used to achieve this, but you should be careful to ensure that the clause is added in such a way that it does not conflict with other areas of your terms. You’ll also need to remove the current clause(s) referring to the introduction “leading” to the engagement.

“For the avoidance of doubt, there is no requirement for an Introduction to lead to an Engagement or be the “effective cause” of an Engagement and any implied term to this effect is hereby excluded to the greatest extent allowed by law.”

You should also check the ‘Definitions’ area of your terms of business for the definition of ‘Introduction’. If the definition states that an introduction must lead to an engagement then you should change the text to remove that requirement.

Other clauses to strengthen your recruitment contracts

There should be a clause to specify that any discount given by the recruitment agency only applies if payment is made within terms, so that if a client does try to avoid paying your fee then you are within your rights to charge the full rate.

Your agreement should deal with the common arguments ‘the candidate was already introduced by another agency’, ‘we already knew the candidate’ or ‘we found him on Indeed/Linkedin’. There should be a clause requiring the client to advise you of this and provide evidence in writing within X* days of receiving the candidate’s CV from you (*usually 3 working days).

Often terms of business will have a clause to specify late payment interest and fees. Sometimes we find that the rates stated are actually less than those that we could add under statute (standard law that applies). Therefore the terms should allow for addition of your own late fees OR those under statute, whichever is greater. Otherwise the clause should be removed to allow statutory interest and fees to be applied. For example statute allows for ‘reasonable recovery fees’ to be added to a debt when 3rd party assistance is required to collect. This usually allows Sterling to have the debtor cover the cost of our service, and often our client will receive more than their original invoice value once all costs have been considered.

Contact Sterling for advice on your recruitment terms of business

If you have any doubts about editing your term of business yourself, and would like our solicitor to redraft your terms for you, then please contact us for details. Alternatively you can choose to use complete terms of business drafted by our solicitor based on our experience of successfully collecting for recruiters since 2006. Our standard terms are available for £300 + vat (per perm or contractor agreement), with redrafting or consultancy charged at £150 per hour.

You can see other useful advice specifically for recruiters, tools and free final demand letters on our website: https://sterlingdebtrecovery.com/tips-and-templates-for-debt-disputes/ or call us on 0207 1005978 to find out more.