Recruitment agency fee disputes

Agency fee disputes are common within the recruitment sector, often caused by a lack of understanding and/or awareness of the terms of an agency agreement. Our understanding and experience of such disputes allows us to resolve disputes promptly and at minimal costs to our clients.

16/09/2014

Adam Kendall

Adam Kendall

Partner

Agency fee disputes are common within the recruitment sector, often caused by a lack of understanding and/or awareness of the terms of an agency agreement. Our understanding and experience of such disputes allows us to resolve disputes promptly and at minimal costs to our clients.

It is not uncommon for clients of recruitment agencies to engage applicants directly who have previously been introduced to them by the agencies. Direct recruitment of an agency's applicant results in a lost fee to the recruitment agency. However, costs suffered by recruitment agencies in such circumstances go beyond this and include efforts to replace the applicant on the agent's books; time wasted monitoring business in which an introduction was not successful to establish if the applicant has been directly recruited; and time wasted trying to keep the applicant on their books when in fact the applicant is working for the business he was introduced to by the agency. 

Consequently, contractual clauses such as liquidated damages clauses or higher fee structures are often used in agency agreements to try to deter businesses from engaging directly an applicant introduced to them by an agency. Sometimes it is possible to argue that such clauses are penalty clauses and are therefore unenforceable. Each case is dependent on its own facts.

Our experience of agency fee disputes includes advising on applicable agency and re-engagement fees and defending and successfully negotiating settlements of claims for alleged breaches of agency agreements as a consequence of direct engagement of individuals previously introduced by recruitment agencies.

Some top tips for dealing with agency disputes

At the outset of a potential dispute, it is prudent to collate all relevant documentation, including any contract and all correspondence between the parties.

The starting point should always be to check what the contract between the parties says. Most contracts have clauses that govern the relationship between the parties, including the parties' respective duties, breaches, damages, termination, notice periods and a mechanism for resolving disputes. It is important to note that some clauses are likely to survive termination of the contract, such as restrictive covenants which can prevent the parties from engaging direct an applicant within a specified period of time following the introduction or following the period during which the applicant was engaged via the agency.  Where there is no written agreement, the situation is less clear-cut but similar issues require consideration. 

When faced with a potential claim by a recruitment agency, it is prudent to develop a strategy and consider any features that may be advantageous (or equally, disadvantageous) to your case, such as ongoing relations between the parties and the desire to preserve those relations; each party's financial position (which can help determine an agency's appetite to pursue any claim and your appetite to defend any claim); full cost likely to be incurred in respect of any litigation; and reputational management. 

It is important to remember that disputes are unpredictable and all parties concerned inevitably suffer some loss. Most disputes end in a compromise. Provided proposed settlement terms are acceptable, it is often better to end a dispute sooner rather than later both in terms of direct losses (for example, management time and costs (internal costs and external legal costs)) and indirect losses (such as reputational damage). A reasonable, timely settlement is usually preferable to the pursuit of litigation where the outcome is uncertain.

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