21st April 2020 | Barney Laurence | Recruitment, Dispute Resolution
Back-dooring: As the pandemic continues to suffocate the economy, recruiters are facing an even tougher time when it comes to collecting payment of fees. Clients are exploiting any and every possible way to avoid having to part with money and... Read more
Back-dooring: As the pandemic continues to suffocate the economy, recruiters are facing an even tougher time when it comes to collecting payment of fees. Clients are exploiting any and every possible way to avoid having to part with money and the classic “back door” scenario is something that seems to be cropping up more than ever.
In simple terms, back-dooring is where a client takes on a candidate without accounting to the recruiter for its fee. It is more often than not accompanied by associated arguments that the candidate came to the client via another channel, independent of the recruiter. This tends to arise in permanent recruitment, but it does also arise in relation to contractors and candidates being taken on by third parties. For the purposes of this note we shall assume we are dealing with permanent recruitment but often the same principles apply to all forms of ‘back-dooring’.
Understandably, recruiters take huge exception to this practice. Often rightly so. Usually (although it’s fair to say not always – more on this later) the recruiter has committed significant time, effort and resources to finding the right candidate so why should the client reap the benefits of those efforts without having to pay? We have noticed a sharp rise in back-dooring cases in recent weeks, and it is clear that in many cases this is just an argument being deployed in the hope of negotiating a lower fee, but there are some cases that are more involved and which can lead to drawn-out, often costly, arguments and even litigation.
So what’s the deal?
It’s actually quite simple. There’s no “law of back-dooring”. It is a question of what you are contractually entitled to, whether that entitlement has arisen and, critically in the vast majority of cases, whether you were the “effective cause” of the candidate getting the job. Usually, it is the application of the effective cause doctrine that is the focus of disputes and where claims fall down (we return to this below).
Each case must be analysed on its own facts. That is a vitally important point. In other words, seldom are two cases the same and every time a backdoor situation arises it’s a question of carefully investigating the full circumstances to establish whether there is a basis for a claim.
The starting point, without exception, is to look at what the terms of the contract say (it is assumed for the purposes of this article that a contract has come into existence – contract formation is a topic in its own right and a complicated one at that). Most recruiters’ terms and conditions are in standard form, covering the essential bases: they deal with an introduction leading to an engagement, with the fee liability arising on “Engagement”. Always check the definitions: Usually there’s little argument as to whether there’s been an “Introduction”, but key in our experience is how “Engagement” is defined: sometimes it means acceptance of an offer, sometimes it’s on the candidate and client signing a contract, sometimes it’s when the candidate actually commences work.
Next, have those events been triggered? This is where the paper trail becomes so critically important. You will need to be able to produce good evidence that you introduced the candidate to the client; that you did so with the candidate’s consent and, importantly, that it was you and your efforts that led to the candidate being taken on. In the vast majority of cases – in our experience – the paper trail is there in the form of emails, text messages, WhatsApps, CRM-entries, and so forth. A good recruiter will have solid evidence of the dealings with the candidate and the client from the get-go; through interviews, salary negotiation, starting dates. Everything. If you don’t have this, or if there are gaps, they could be fatal. If all the ingredients are there, you can get your claim moving (what that entails is a topic for another day).
What commonly comes back from the client in response to the claim is that someone else introduced the candidate; often another recruiter, but we have seen it a lot in recent weeks and months where it is claimed that the candidate was introduced following an internal referral. In practice, it is impossible to evaluate the strength of the recruiter’s claim until these arguments are bottomed-out. That means your lawyer pressing the client very firmly not only for full details – who the alleged third party or internal referrer is, when they came on the scene, and so forth – but, critically, for disclosure of all documentation underlying those claims.
This is your opportunity to corner the non-paying client. A well-targeted, well-drafted claim for disclosure can be make or break. It is the key to the back door, so to speak. It is designed to flush-out the claim that some third party was responsible for the candidate being taken on, not you. If it’s just a try-on, the client’s response to the disclosure request will be telling: after all, if they have the documentation to prove their case, you would expect them to jump to hand it over so as to get you off their back. If they don’t, they usually refuse to engage with you.
The way to apply pressure to get this documentation is for your lawyers to threaten an application to the Court and to tell the client that, if they do not cooperate, the lawyers will make sure the Judge is told about it if and when you get before the Court. For various reasons, this threat doesn’t always carry a lot of weight but it’s in reality the only tool at your disposal short of just issuing Court proceedings.
As and when the disclosure comes in, it needs to be analysed very carefully. Is there another agent involved? When were they instructed? When was the candidate engaged? Have you been given all of the relevant material? Might there be anything missing? Are there suspicious circumstances? Last year we had a case where the client got angry that our recruiter client wouldn’t reduce its fee; we then found out that, a mere few days later, another agent had been instructed and, it was claimed, introduced the same candidate to the client – it stank and using the above disclosure approach we flushed it out for what it was – a cook-up – and recovered the recruiter’s fee in full, as well as all legal costs.
Again, each case must be taken on its own facts and it is paramount to evaluate all of the circumstances. There is a world of difference between a candidate being engaged a month after an introduction, versus 11 months later: the latter lends itself to a much more tricky fee claim, even if the recruiter’s terms contain the common “12-month ownership clause” (which, by the way, does not guarantee you protection). Equally, what was the extent of the recruiter’s involvement in the introduction and engagement? A recruiter who has done no more than forward a CV can expect to face a higher degree of resistance, especially if it was then many months before the candidate was taken on and there is evidence that another agent subsequently came on the scene. Where is the candidate now? Have they moved on? Can you get a statement from them? Some careful lateral thinking can prove invaluable to getting to the bottom of what has taken place and therefore improving your position.
Effective cause then needs to be considered. This, in our experience, is what the vast majority of back door cases turn on. The legal position is, unfortunately, not entirely clear and there are few recruitment cases on it (most of the cases relate to estate agency). What we do know is that, in the vast majority of cases, in essence the law requires:
- That the agent is the effective cause of the candidate being engaged;
- That the agent need not however, be the immediate effective cause, provided that there is sufficient connection between his act and the ultimate engagement of the candidate.
What this means in practice is not so easy to pin down, which is why this area of the law is unsatisfactory and in need of clarification. Hence why we say ‘each case on its own facts’ and it is a question of carefully scrutinising all aspects of a case to work out whether effective cause can be shown. This area of the law cries out for clarification because it would enable lawyers to advise recruiters with more certainty.
It is, at the same time, not impossible for the client to be liable for two recruitment fees in respect of the placement of the candidate. We have seen that happen before so it should not be assumed that if another recruiter is on the scene only one of them will earn a fee. Both could be entitled to payment.
There’s also scope for negotiation throughout: splitting the fee with the intervening recruiter is one potential solution, galling though it tends to be but often a better way forward than the prospect of an expensive legal battle. It is fair to say that a lot of the time the purpose of engaging in hostile correspondence is to create enough doubt and concern in the client’s mind so as to make litigation risky for them and therefore to elicit a settlement offer. Back door cases very rarely see a courtroom (which probably explains the lack of reported cases) because most of the time they settle. What that settlement consists of depends on all manner of factors, probably the most critical of which is the strengths and weaknesses of the parties’ respective positions, which again is the reason why it is so fundamental to establish from the outset what those strengths and weaknesses are.
In times like these, cash flow is critical. There is an enhanced drive from recruiters to pursue fees. But it is very rare that back door claims are resolved in short order; by their very nature they tend to take a while and that inevitably means the cost of the process is correspondingly higher than might be the case in a more straightforward debt claim scenario. Nevertheless, in our experience persistence is key: you need to show no let up. What must be conveyed is that you will not go away and that cost is not going to deter you from pursuing what is owed to you. That said, the present climate also means that many simply do not have the resources to commit to drawn-out legal disputes so it may be a fight you need to defer to when life gets back to something more resembling normality. That is usually no problem: you typically have six years to pursue your claim so waiting a bit if necessary, is an option.
Back door claims are rarely straightforward and almost never get resolved overnight. They require careful focus and a commitment from the recruiter, along with the benefit of experienced legal advisors. Usually only those who persevere tend to achieve a result they are content with, and the results can be both rewarding and critical to a recruiter’s income. But think too about the reputational risks of not chasing fees when they’re properly due; can you afford to do nothing?
Contact Barney for more information.