Introduction fees: The recruiters’ battleground?

Clare Gilroy-Scott

To avoid dispute, the question of when an introduction fee is payable in respect of the introduction of staff to a client should be set out clearly in agreed terms, both parties acting in accordance with such intention to create legal relations.

These are basic contractual principles. For recruiters, this is an area ripe for dispute. Fees are regulated, to a certain extent, by the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (‘Conduct Regulations’). Newer recruitment tools involving social media operating alongside more traditional recruitment methods can make identification of when a recruiter is entitled to a fee more complex.

Introduction fees are generally payable when a candidate is introduced to a client, resulting in direct engagement by the client or a third party (i.e. when you are acting as an employment agency). Similar fees, also known as ‘transfer fees’, may also be payable when you are acting as an employment business (temp/contract recruitment) where a temporary worker is taken on by the client on a permanent basis (temp to perm); or through a different provider (temp to temp); or is subsequently introduced by the client to another person who engages them (temp to third party).

How can you ensure that you are in a strong position to resist fee disputes?

Effective cause
In terms of permanent recruitment, possibly the most common dispute will be when more than one recruiter sends the same candidate’s CV to a client, or indeed, where the client has seen the candidate on social media. Case law in this area involves estate agents’ commission but is generally regarded as analogous with recruitment. The recruiter must establish that they are the ‘effective cause’ of the engagement, not simply ‘a cause’.

Therefore, it will not necessarily be the recruiter who provided the CV first who is entitled to the fee. Relevant factors will be the content of contractual terms, evidence of acceptance of those terms and conduct demonstrating that the recruiter was the cause of the engagement. This might include arranging interviews and assessments required by the client, dealing with the client/candidate feedback, assisting with the negotiating process of the candidate’s terms of employment, or otherwise acting to progress the recruitment process. This may be more of an issue in contingency recruitment where the fee is payable only upon engagement, rather than in retained work where a portion of the fee will be payable at various stages during the recruitment process, regardless of whether the candidate is engaged.

Transfer fees
These are a type of introduction fee payable in relation to temporary workers in the circumstances described above and are subject to the provisions of Regulation 10 of the Conduct Regulations. It is essential to get contractual provisions relating to transfer fees agreed before you supply workers. Broadly speaking, for temp to temp and temp to perm you cannot charge your client for a transfer fee unless you give your client the alternative option of an extended period of hire and set out the method of calculating the fee. This will not apply in relation to limited company contractors who are ‘opted-out’ of the Conduct Regulations before the engagement in question.

Other practical points on fees
Ensure that your terms relating to fees are clear:

• When is the fee payable and how is it calculated?
• Will the client be entitled to a refund if the candidate leaves in a certain period? If so, in what circumstances and how is this calculated?
• Will you charge a cancellation fee if the client withdraws an offer? If so, how is this calculated? Make provision for a fee if the client subsequently engages the candidate within a certain period.
• If you are supplying limited company contractors, ensure that the introduction fee covers engagement the individual worker, not just the corporate entity. Are they opted-out of the Conduct Regulations?
• Limit the period in which an introduction fee may be payable (e.g. where there is an engagement within 6 months of the last act by the client in relation to the candidate).
• Where possible, provide and agree your terms of business before providing candidate information. Otherwise, supply terms at the same time as the candidate information and make clear that any subsequent instruction in relation to that candidate will amount to acceptance of the terms. Any oral agreement should be noted and subsequently agreed in writing as soon as possible.
• If agreeing the client’s terms, check the fee provisions carefully to ensure that the points above are covered.
• Obtain signed terms if possible. Otherwise keep records of when and how terms have been sent to the client and brought to their attention, making clear that continuing instructions in respect of a role or candidate is deemed acceptance of the terms.

Clare Gilroy-Scott is a senior solicitor in the employment team at Goodman Derrick LLP

Website: www.gdlaw.co.uk