Recruitment agency fee dispute: A recent case handled by Sherrards’ recruitment specialists, Barney Laurence brought into sharp focus the importance of the client recruitment agency (“Company A”) following its own terms of business.
Company A was engaged by Company B to source a candidate for a role. Company A supplied a quality candidate, whom Company B subsequently engaged behind Company A’s back. When Company A found out that its candidate had been hired, it immediately approached Company B seeking payment of its fee pursuant to its terms and conditions. Court proceedings were issued.
Company B initially disputed that there was any contract at all, but conceded only days before the trial (well over a year later) that there was a contract and that Company A’s terms and conditions applied to that contract.
Under Company A’s terms – and as is commonplace in recruitment – its commission fee was to be a percentage based on the amount of the candidate’s “remuneration”. In the event that the actual remuneration was not known to Company A, Company A could calculate its fee based on what it deemed the remuneration to be in the circumstances, but could only do so after having first asked Company B what the remuneration was and allowing Company B a period of time to respond to the request.
Company A, therefore, enquired of the level of the candidate’s remuneration but did not receive an answer. Six days after having made the enquiry, Company A proceeded to raise an invoice based on an assumed salary and issued the invoice to Company B. Company B responded (albeit not sufficiently) thirteen days later, but by this time Company A had already issued its invoice. The problem with this was that, under Company A’s terms and conditions, Company B had fourteen days to respond as to the level of remuneration, and so an issue therefore arose as to whether Company A had “jumped the gun” in issuing its invoice without giving Company B the fourteen days provided for in Company A’s terms and conditions.
In this case, Company A’s commission was 30%. But if it could be shown that Company A had failed to comply with its own terms and conditions (by raising an invoice prematurely), Company A risked losing the right to claim its 30% fee under the contract, instead having to fall back on a claim for damages, which could well have meant Company A receiving substantially less in monetary terms than the 30% it had contracted for.
In the event, the case settled the day before trial and so the issue was not determined by the Court. Further, it was unlikely (for various reasons, not least a demonstrable lack of honesty on the part of Company B) that Company A would have lost the right to recover its contractual fee at 30%. Nevertheless, the case stands as a stark warning to recruiters that, if you fail to follow your own terms of business and the procedures, you could well find that you lose the ability to recover your contractual fee and instead have to settle for a potentially far lesser amount. So whatever your terms and conditions say, make sure you follow them to the letter.
Well-drafted, unambiguous terms and conditions, along with robust procedures, can prove to be the recruiter’s saving grace in situations where there is a dispute about fees, so it is always worth investing in having your documentation and processes reviewed by specialist recruitment lawyers. The cost of doing so will invariably be a mere fraction of what you could spend in legal fees pursuing payment from your client. Worse still, poor documentation and procedures could mean having to forego a fee altogether.