Jeremy Milligan, director, Sterling Debt Recovery discusses weaknesses in recruitment Terms of Business.
The majority of UK recruiters use very similar terms of business, mostly based on those from one of the leading associations. Whilst the terms cover most eventualities, they do have some significant flaws that can weaken the recruiter’s position, in some cases allowing the client to avoid payment altogether. The good news is that these weaknesses can be fixed through redrafting certain clauses or by using stronger terms.
Commonly used agreements state that for an introduction fee to be due, the recruiter’s actions must have led to the engagement. Whilst this seems to make sense, it can be used as a loophole by clients (or more likely their solicitor) looking for a way to avoid liability.
It means that, should the case go to court, the recruiter must prove that it was their actions that directly led to the client hiring the candidate. The recruiter must prove not that they were a cause of the engagement, but that they were the cause. If the client claims that they already knew the candidate, found them on Indeed, or were using another agency, then it is extremely difficult for the recruiter to prove that their actions led to the engagement rather than anything else.
It appears that the ‘effective cause clause’ was designed to create fairness for cases whereby two agencies have introduced the same candidate, i.e. the agency that 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 weakness that the client can use to their advantage. We advise that recruiters remove this clause from their terms.
However, this isn’t the end of the matter. Even without this clause being present, the courts can imply a clause into recruiter’s agreement that their work must have been the effective cause of the employment for a fee to fall due. It is fairly standard for the courts to do this for any commission agency agreement.
In order to guard against this a new clause should be added to the agreement: “There is no requirement for the Introduction to be the effective cause of the Engagement and any implied term to this effect is hereby excluded to the greatest extent permitted by law”.
Whilst the most commonly-used terms do deal with back-door hires, they often fail in that they do not penalise the client in any way. If the client breaches the terms by hiring the candidate without notifying the recruiter, then just the standard fee is due. To make matters worse, under the terms, the obligation to make payment only arises once an invoice is raised, so the recruiter is not able to add interest or late fees from the time the client breached the terms. So, from the client’s point of view, there is no financial incentive not to breach the terms. If they don’t inform the recruiter about the engagement then the worst that can happen is the recruiter finds out and invoices for the standard fee, so the client gets to pay the same amount later, with a chance they will pay nothing at all.
Instead, the terms should state that the ‘standard’ engagement fee is at a higher percentage than the actual rate agreed, and a ‘discounted rate’ is given to the client provided they do not breach the terms. Also, in the event of a breach, the payment obligation can be defined to fall on the date of the engagement, so that contractual interest can be added to the debt (see below).
Late payment clauses
Often late payment clauses are drafted in such a way that they allow only for interest to be added in cases of late payment. This actually puts the recruiter in a weaker position than if the clause did not exist at all. Without this clause the Late Payment Act would automatically apply in entirety which allows for interest, late payment fees, and reasonable costs to be added.
The ideal however is to include a clause that allows the recruiter to add either contractual interest OR use the Late Payment Act. It should also define what reasonable costs are, to cover the expense of engaging a debt collection agency for example. This gives the recruiter the flexibility to use the most advantageous method in each case, and ensures that late fees can be added in all cases, including where the Late Payment Act would not apply.
‘ Indeed, it is not uncommon that terms are edited multiple times over the years by businesses, sometimes resulting in a hotchpotch that loses its integrity. We recommend that you have your terms reviewed and redrafted by a solicitor such as our own, who specialises in the recruitment sector.’