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Trying to Recover Recruitment Fees and Limit Liability? Beware of the Pitfalls

on Thursday, 25 June 2020.

During the lockdown period we have noticed a steady increase in instructions from recruitment agencies recovering placement fees for candidates introduced and potential liabilities of employment businesses due to inadequate contractual terms.

In many cases it is apparent that there is either no contract, or the terms of the contract entitling the recruitment agency to their fees or absolving employment businesses are unclear.

How to Make Your Contract Legally Binding

For a contract to be binding between the recruitment agency and the  hirer, and between the employment business, its client, and agency worker the following are essential ingredients of the contract namely:

  • an intention to create legal relations between the parties
  • an offer and acceptance made by the parties
  • adequate consideration

Unfortunately, in some instances difficulties have arisen in enforcing contracts because one or more of the above have not been considered.

No Terms Agreed

In one instance, a recruiter anxious to impress his employer entered into a dialogue with a prospective client/hirer through social media, and introduced a candidate who was subsequently hired without any terms and conditions being agreed. Needless to say, the hirer is refusing to pay the placement fee.

Unclear Terms

In another scenario, the standard terms of business provided that there was no obligation on the part of the employment business to give notice to an agency worker to terminate the assignment, which was contradicted by a schedule which required the employment business to give a month's notice. Unfortunately, the terms and conditions with the hirer enabled it to terminate the assignment with the employment business without notice. The agency worker is claiming their month's pay from the employment business.

In a separate situation, a recruitment agency introduced a candidate, entitling it to a fee if the hirer engaged the candidate within a certain period. There was no contract of employment, contract for services or otherwise entered into between the prospective hirer and the candidate. However, the potential hirer had provided the candidate with an email address, although there was no evidence there had been any commercial activity. Unfortunately the definition of what constitutes an 'engagement' is unclear, and again there is a dispute about fee entitlement.

Coronavirus guidance employers


Tribunal Liabilities

In another case, an employment business assigned all employment obligations to make payments of wages and pensions to an umbrella company. There is some doubt as to whether the agency worker was aware of the arrangement, although they were clearly paid on an ad hoc basis. When the umbrella company stopped paying the agency worker (even though it had received the funds to pay) the latter issued tribunal proceedings against the employment business, and also sought compensation for losses arising from the non-payment and late payment of salary, including:

  • bank overdraft fees
  • mortgage penalties
  • obtaining a poor credit rating.

There is no case law in this area, serving a warning not to become a test case.

In all of the above scenarios, the contractual documentation was inadequate, leaving recruitment agencies and employment businesses having to become involved in expensive litigation in pursuing placement fees for candidates, or alternatively leaving employment businesses to defend tribunal proceedings.

We would strongly advise recruitment agencies and employment businesses to:

  • review their existing terms and conditions to make sure they adequately cover the intended legal relationship
  • carefully document and obtain signatures to terms and conditions upon which they seek to rely, to avoid uncertainty and to make it easier to recover fees or defend tribunal proceedings where agency workers have not been paid

Here at VWV, we have a specialist team that can assist either with the review of your terms and conditions of business or collecting sums owed to you.

For specialist legal support with recovering recruitment fees or reviewing your terms and conditions of business, please contact Michael Delaney in our Recruitment team on 07909 912 564, or complete the form below.

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