Recruitment Agency Fee Disputes: Recovering Third Party Introduction Fees

19th February 2024 | Aaron Heslop | Dispute Resolution, Fee Disputes, Recruitment

Recruitment agency fee disputes: In a recent case handled by Aaron Heslop of Sherrards’ recruitment team, the importance of well drafted terms of business came to the fore in recovering an unpaid fee for a backdoor hire.

In this case, Sherrards were engaged to act on behalf of a recruitment agency that specialised in supplying finance professionals into various types of finance companies. The recruiter was engaged by a global private equity investment firm (“Company A”) to source a finance operations professional for them. The recruiter fulfilled the brief and sent several CVs to Company A, some of which resulted in interviews.

As sometimes happens, the recruiter did not hear further and received no indication from Company A as to whether any of the candidates had been successful. After following up with each of the candidates, it transpired in conversation with one of them that they had been hired into another company that appeared to be related to Company A. After some further investigation, it further transpired that the candidate had been hired into another company within Company A’s corporate group (“Company B”). Upon discovering this, the recruiter sought to recover its introduction fee from Company A. However, Company A maintained, for various reasons, that there had been no introduction within the meaning of the recruiter’s terms of business and that it was not liable for a fee (separately Company B was also asserting that there was no contract in place between it and the recruiter).

Following Sherrards’ instruction, we reviewed the terms of business and the chain of events, and it was unequivocal that there was a contract in place between Company A and the recruiter. However, what required further analysis was whether Company A was still liable for the introduction fee in circumstances where it had effected a Third Party Introduction?

In the event, fortunately the recruiter’s terms of business had appropriate wording to cover off this situation and we were able to confidently assert that Company A would be liable for the fee in full where they have effectively made an onward introduction and the prospective candidate had subsequently been hired.

Furthermore, in this case, as Company B was a holding company of Company A, this meant it was part of its corporate group structure. This provided a second line of attack to recover the fee, as Company B was defined as an “Associated Company” within the recruiter’s terms, meaning it was as if the introduction had been made directly to Company A. The recruiter was able to recover its fee in full, swiftly, and avoided court proceedings.

Action Point

The case serves as a useful for reminder to all recruiters that terms of business are organic documents that should be regularly reviewed and refreshed to ensure that they offer as much protection as possible, particularly in circumstances where a backdoor hire has taken place. Poorly drafted terms of business could be the difference between recovering a fee or not.

If you would like to know more, please contact Aaron Heslop for a no obligation discussion.