Candidate ownership: What companies need to know

Simon Girling

When two recruitment agencies claim ownership of the same candidate, which agency should attract the introduction fee?

Candidate ownership is a frequent problem for recruitment agencies but when two agencies each claim that they have introduced the same candidate, how does the client ascertain which is entitled to the fee? Unfortunately, in this case, it is common for both agencies to pursue the client for an introduction fee for the same candidate placement. Faced with the prospect of paying two fees, often equating to 50% of the candidate’s remuneration in aggregate, clients will often prefer to retract an offer of employment rather than pay both agencies. Clearly this situation is of benefit to no one in the process: the client does not hire the suitable candidate; the candidate does not receive an offer for a role they were suitable for; and neither agency attracts the introduction fee.

So, who should attract the fee in this circumstance and how can clients avoid the situation arising in the first place? When two agencies claim ownership of the same candidate, there are two basic principles that will determine which agency is entitled to be paid: contract law and the ‘effective cause’ principle.

Contract law

When a recruitment agency submits a candidate’s details to a client, it is offering a contractual agreement typically based on the agency’s standard terms and conditions of business. As this is a contractual offer, the client is entitled to accept or reject it. By acting on the introduction and arranging to interview the candidate, the client has affectively accepted the offer and the agency will ordinarily be entitled to claim an introduction fee.

If two agencies introduce the same candidate for a position, the client is free to accept one introduction and reject the other. There may be several reasons why a client will choose one introduction over the other, but often it will come down to three main points:

(i) Agency approach and candidate suitability

(ii) Commercial terms

(iii) Working relationship or previous experience with the client

In this instance, it is highly advisable for the client to ensure they inform the unsuccessful agency that the introduction has been rejected. If the client does not inform the unsuccessful agency that it has rejected the offer, the agency will assume acceptance and continue to claim ownership, despite having done nothing more than submit a CV.

Informing an agency that their introduction has not been accepted allows the client to move forward with the selected agency without any confusion regarding introduction of the candidate. Clearly if there is no other agency involved and the client proceeds to interview and engages the candidate, the selected agency making the introduction may still be entitled to claim a fee, subject to their contractual terms and conditions of business.

Unfortunately, it is often the case that clients do not actively reject duplicated introductions from their agency suppliers. As a result, it becomes necessary to work out which agency is the ‘effective cause’ of the hire.

Effective cause

Many clients recognise the need to advise an unsuccessful agency of rejection of a candidate introduction to avoid duplication. However, as this process can be time-consuming and administration-heavy, some clients prefer to operate a ‘first to introduce’ policy. Put simply, this means that the agency who submits the candidate’s details to the client first, is entitled to the introduction fee. This policy is often a successful one but there are some significant flaws to consider.

Firstly, the policy can be responsible for poor recruitment practice as agencies compete to be first to submit the candidate regardless of whether they have received candidate consent. The drive to be the first agency to place a candidate can also encourage mass mailing of CVs with little real understanding of the candidates’ suitability for the role. Agencies who use this approach will often benefit from a ‘first to introduce’ policy even though they have made no attempt to sell the role to the candidate or comply with their obligations under the Conduct Regulations and Data Protection Act.

Secondly, email can be an unreliable communication method as mails can be easily ignored, automatically filtered to junk or lost in the client’s inbox. Clearly it is not viable for an agency to claim ownership of a candidate if the email has not been read while a second agency has actively discussed the candidate with the client, arranged the interview and managed the recruitment process.

The law of effective cause ensures an agent will not be entitled to any fee unless they are deemed to be the effective cause of the candidate being hired. Most of the litigation around this rule is found in estate agency disputes, but it is also commonly used to resolve dispute in the recruitment industry.

The cases of Wallace Hinds and Associates v Lastolite (2000), and Law Staff Legal Recruitment Limited v Just Costs Limited (2009) are two useful examples.

In the above cases, the court considered whether the agency had played an effective role in the employment of the candidate. Had the agency been ineffective, there would be no entitlement to an introduction fee. The details of the cases differed but they did follow a common theme. In both cases, the court decided that the agency had not played any part in the client’s engagement of the candidate and so were not the effective cause. As a result, the agencies’ claims for fees failed.

Thankfully, courts are now generally unwilling to uphold a ‘first to introduce’ approach and instead enforce the effective cause principle in such dispute cases.

An ethical approach

Contract law and the effective cause principle protect clients and the recruitment industry from unscrupulous agencies. An ethical agency will of course respect a client’s decision to use another agency, avoiding any dispute over fees. It is important that clients have a clear understanding of these principles, so they can screen agencies in the supply chain and encourage ethical recruitment practice. Good recruitment practice is of benefit to all parties involved ensuring the best candidate is hired, the best agency is paid, and the client is satisfied and has confidence in the recruitment industry.

Simon Girling is founder and director of Girling Jones Recruitment