The benefit to the client is obvious. Instead of dealing with a wide range of recruiters and being subject to lots of different sets of terms of business, they can deal with all recruiters on the PSL in a uniform way. This in turn streamlines processes and costs for the client. However, this can lead to potential pitfalls for the unwary recruiter, used to dealing on its own terms.

Here are some of the key pitfalls recruitment agencies should watch out for when entering into the PSL terms:

Your terms will no longer apply

If a recruiter signs PSL terms, then the supply and subsequent hire of a candidate will be subject to those terms. Such terms typically will include a longer lead time for payment.

Redefining “Introduction” 

PSL terms will generally have a narrower definition of what constitutes an introduction for the purposes of a fee being payable. Typically, PSL terms will state that an introduction is only made where the client has requested assistance with filling a vacancy (which potentially rules out fees for speculative candidates).

Exclusion of third-party Introduction fees

PSL terms may include a clause which specifically prohibits fees arising where a candidate is introduced by the client to a third party. This can be problematic where the client is part of a large corporate group and wants to move a candidate around between group companies.

Rebates and Refunds

PSL terms will have much wider powers in regard to claiming rebates and refunds for candidates that don’t work out.

Entire agreement clauses

When a candidate was supplied under the recruiter’s terms, but hired after signing PSL terms, what happens to the recruiter’s fee if a candidate is mid-placement and then PSL terms are signed. Under what terms does the recruiter invoice? An entire agreement clause will usually state that the PSL terms supersede and replace any terms that were in place between the parties.

 

Using a PSL can be useful in many ways, but it is important to keep in mind the limitations they place on a recruiter’s ability to be paid for its services.

To find out more about PSL terms, please contact Aaron Heslop.

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.

Hot on the heels of the US Federal Trade Commission’s (“FTC”) proposal for a complete ban on non-competes, the UK Government has announced its intention to limit post termination non-compete clauses to just three months. This comes as part of a wider announcement of proposals which the government says have been made to help boost the economy, in this case by promoting competition and productivity in the workplace.

When will this happen?

It’s unclear at the moment when this restriction will come into force. Any reform to the rules on non-complete clauses will require primary legislation, which the government’s press release states it will be done “when parliamentary time allows”, so when that will be is anyone’s guess.

What’s the impact of this change?

At first glance, this will cause alarm for many employers, particularly those in recruitment or sales where the exposure of former employees joining a competitor or setting up in competition is a real concern. However, there’s long been criticism in the courts for non-compete clauses with judges seeing them as unreasonable restraint of trade, particularly where there are non-dealing and non-solicitation clauses which can arguably offer sufficient protections to a business’ legitimate interests, without there being a total ban on competition.

What we do know is that the government have confirmed that limiting non-compete clauses will not affect restrictions during garden leave or paid notice periods (the proposal relates to post-termination only), or change the position on confidentiality clauses or non-solicitation clauses (which prevent employees from contacting previous customers, clients or suppliers in an attempt to win their business).

However, amongst other things, the government’s press release was silent on:

• non-dealing clauses (which sit somewhere between non-solicitation and non-compete clauses and are generally, therefore, easier to enforce than non-compete clauses); and
• whether the proposals will have retrospective effect (it’s likely that they will so an employee who spends 3 months of garden leave would likely not be restricted after the end of their employment, regardless of whether the restriction is longer).

What should employers do now?

Until the proposal becomes law, there’s no legal requirement to amend any existing restrictions, however employers that currently have restrictions beyond 3 months, or who are considering introducing them, should think carefully about whether these are likely to be enforceable now, and in the future.

Restrictive covenants are a complicated area and for the best chance of them being enforceable, they should be regularly reviewed. This is particularly important because the courts will only consider whether a restriction is enforceable at the time it’s entered into, not at the time the employer seeks to enforce them (by which time the employee/former employee may have a far more senior position, making the restrictions even more important).

For advice and assistance with drafting enforceable restrictive covenants, contact the Employment Team at Sherrards.