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Are your Terms of Business up to the challenge?

by Max Jones / Monday 27th February 2017


As part of the on-going support network here at SSG, one of the areas that we tend of get heavily involved in during the lifetime of any recruitment venture is the legal & compliant aspects of running a business. The popular stigma attached to the legalities of running an agency are that it’s very tough, very tricky & that’s it’s easier to understand how Leicester City have gone from winning the Premier League to fighting for relegation within 9 months, than it is to understand the ever-changing legalities surrounding growing a business. 

In our experiences, while seemingly every day we are met with a brand-new challenge from one of our fantastic ventures – there are certainly two areas that we tend to deal with above all others.
These include:

  • The so-called “back-door hire”
  • And the commonly known “fee fight” scenario

At the beginning of this month Luke Menzies, the owner of Menzies Law, wrote a blog alluding to a 25% increase in these types of cases across the recruitment industry & I wanted to take this opportunity to talk a little bit more about the blog from Menzies & our experiences of these types of scenarios over the last 13 years.

So firstly, the so-called “back-door” hire.

This is essentially when an agency makes an introduction of a candidate to a client that they work with. The candidate in question is not hired at the point of introduction & the client rejects the candidate. Seems like a typical day in recruitment, doesn’t it? However, the “back-door” scenario means that at some stage in the near future, the client goes direct to the candidate in question & hires them. Subsequently by-passing the agent & the juicy fee attached. Ingenious, but wrong (some would say, a bit like building a meth lab for a terminally-ill cancer patient!).

The agency would tend to hear indirectly about this “through the recruitment grapevine” & then would rightfully seek their fee on this. On the basis that their terms of business state that the fee is due if the candidate is hired by the client for any reason within a certain period following that initial introduction. Historically we have seen these timeframes to be as short as 2 months & as long as 12 months. Our feeling is that any client “worth” having a relationship with should not feel uncomfortable with singing any terms stipulating any period between 0-12 months.  

And secondly, we have what is known as a “fee fight” between agencies.

This scenario often reminds me of when I was a lot younger & chasing after girls in the playground. (Did I say chasing? I mean fending off proposal after proposal after proposal in-between Year 3 maths & music classes. It was a tough old life for me as a 9-year-old.) It reminds me of that because there used to be this girl I really liked & you know, I’d spoken to her on & off and chucked the idea of her & I going for a cookie after school on a Friday once. But she didn’t respond to me nor acknowledge my proposal (harsh, I know), but like the youthful 9 year old I was - I thought that meant yes. I mean she didn’t say no did she, so it must be yes? So, I was ready, next Friday Max & Susan would have a cookie date.

Unfortunately, a few days after, Susan was approached by Jack (a well-known 9 year old to me at the time) to go for a cookie on Friday (!). Long story short, he put in the effort, he would talk to her every day, help her at school, walk her to the bus – the whole shebang. & naturally enough on Friday I see them going off to the cookie shop together & I’m left there mentally scarred. Enough so to still be talking about it 20 years later!

The “fixed-fee” issue is much the same. In this scenario, Agency 1 (Max) introduces a candidate to their client but the candidate is not hired. Then, along comes Agency 2 who presents the same candidate to the client & he is hired. Agency 2 requests its fee & is paid accordingly.

Agency 1 then hears about the hire & feels a little hard done-by by this & requests their fee. The question is - are they right?

In our experiences, & those echoed by Menzies in his recent blog, we suggest that our ventures should always consider the following points:

Do you have binding terms in place with the client? There must be clear evidence that the terms of business are binding, they must have been communicated & accepted by the client. Without a clear acknowledgement & signing of terms, any claims for fees will be unsuccessful.

Is there “effective cause” of the hire? Generally speaking, an agent can only demand a fee if it was the “effective cause” of the hire. In other words, who deserves the fee for the candidate. The agency that simply sent a CV over? Or the agency that spoke with the candidate, presented the client, arranged the interview & so on. As Menzies suggests, it is very specific to each case & nothing can really be assumed in a scenario like this.

What is the clients evidence? As they always say, the devils in the detail. The way these disputes have historically always been settled for our ventures has been down to the wording of the terms, are they binding to the client, & essentially how did the hire take place & who liaised it? For this you will need to talk to the client to understand their accounts of the events, their recollection of who introduced the candidate, who set up the interview, who negotiated the salary, who set up the offer & who finally accepted the offer.

Closing thoughts
In our experiences, we appreciate that agencies can find themselves in these situations unknowingly. However, there are certain practises that can be abided to as good practice to make sure agencies find themselves in these situations as infrequently as possible!

For example, making sure that your TOBs are as tight as they possibly can be. An hour of two with the legal gurus here at SSG can save you some serious cash in the long run, if your terms are ever put to the test (which we all know they will be from time to time!). Secondly, ensuring your employees don’t send speculatively spam emails to clients with “CVs of interest” – not only is this impersonal, but it also makes your agency vulnerable to Jack the recruiter coming in & taking Susan the candidate out for a date & you’re powerless to stop it!

If you’d like to talk in more depth about anything that we’ve had the chance to speak about today then I would encourage you to give SSG a call. Alongside that, if you would like to understand more about Luke Menzies & his work then have a look at his blog (http://www.menzieslaw.co.uk/blog-recruitment-agency-fee-disputes/). Either way, as an SSG client we would encourage you to talk to us as frequently as you want to talk about any area of your business – not just the legal aspects of your agency.

After all – we’re here to help drive your business in whatever direction you want & whatever pace you desire. Seems silly not to talk us at every stage.