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As your business grows, you will need to hire more employees to keep up with client demand. A recruitment agency can help you hire the best talent to accelerate your growth. However, before signing up to their services, you should review their recruitment agreement. This article explains what your business should look out for in an agreement with a recruitment agency.
Nature of Recruitment Agency Agreement
Your arrangement with your recruitment agency depends on the time you wish to invest in the hiring process. Recruitment agencies usually provide their services through:
- an end-to-end process, where the agency advertises your candidate specifications, provides you with potential candidates and interviews them on your behalf; or
- mass recruitment, where the agency may help advertise your job but allows you to shortlist and interview candidates.
If a recruitment agency has specialist industry expertise, they may help to train and hire out employees for your business in an arrangement known as a labour hire agreement. However, that is different from a standard recruitment agreement.
The recruitment agreement should set out:
- the services that you expect the recruiter to perform;
- the cost of those services; and
- when you have to pay for those services.
Identify the situations where you will owe the agency money. For example, some agencies require payment if they find a candidate for you. Similarly, others require payment for marketing your position.
Agreement Specifies Exclusivity With Recruitment Agency
Some recruitment agencies require you only use them to recruit for a specific job, especially if they specialise in an industry. Exclusivity means you will not engage any other recruitment agency to recruit on your behalf.
Decide if you would agree to such an exclusive arrangement. If you do agree, you should carefully review the terms of that arrangement. Be realistic about whether your business can comply with the terms of that exclusive arrangement. You should avoid any restrictions on your ability to recruit employees yourself if the need arises.
Negotiate your agreement to include clauses that:
- state there is no exclusivity if the recruitment agency fails to find an appropriate candidate within a certain period;
- limit any exclusivity to a specific job and not for all future positions;
- allow you to recruit candidates yourself based on your business needs; and
- provide an option for you to end the agreement if they fail to provide appropriate services or find a suitable candidate within a certain period.
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Introduction of Job Candidate
Recruitment agencies obtain their fees from “introducing” you to candidates. Therefore, the recruitment agreement should outline this introduction takes place.
For example, you want to avoid paying any fees if:
- you had already spoken with the candidate before the agency’s introduction;
- another agency has already introduced you to the candidate;
- the candidate has already approached you directly; or
- the agency fails to provide details about the candidate.
Look for the contract’s definition of the word “introduce”. That definition may provide a guide to the situations that may count as an “introduction” that triggers the obligation for you to pay a fee.
The recruitment agreement should outline when you must pay a fee to the recruitment agency. In general, you will need to pay their fees if you hire their proposed candidate. However, a recruitment agreement could state that your business needs to pay fees if you:
- introduce the candidate to a third party (such as a different part of your business);
- engage a candidate and re-engage them within a specific time, where re-engagement means you have to pay another set of fees; and
- engage a recruitment agency on a retainer, which means you must pay a set amount of money to the agency even if you do not hire their proposed candidate.
Identify all the situations in the contract where you have to pay fees to the recruitment agency. Do not assume that the only fee payable is when you hire their candidate.
Disbursements are additional costs that an agency incurs for carrying out its services. For example, agencies must pay a fee to online job platforms such as Seek to list your job position. If the agency lists that fee as a disbursement, you will have to pay that fee on top of the usual recruitment fees.
Request an estimate of potential costs and require agencies to seek your approval for any disbursements.
Replacement Guarantees and Refunds
Recruitment agencies may include a “replacement guarantee” in their recruitment agreement. A replacement guarantee requires the recruitment agency to replace the candidate if they leave the job early in limited circumstances.
Alternatively, the agency can provide a refund of the recruitment fee if the candidate leaves their job early, such as during the probation period. However, the recruitment guarantee or fee refund may not apply if the candidate leaves the job because of voluntary or involuntary redundancy or if you substantially change the job description.
Check your recruitment agreement to see if there are provisions relating to a replacement guarantee or a fee refund. Are there any limits to the scope of the guarantee or refund?
Whether it’s your first hire or your fiftieth, this guide will help you understand the moving parts behind building a high-performing team.
A good recruitment agency can boost the growth of your business by helping you hire great employees. Before you engage a recruitment agency, you should review your recruitment agreement to determine the:
- nature of the arrangement;
- reasons for exclusivity;
- definition of introducing job candidates;
- total fees payable for services;
- cost of disbursements; and
- scope of replacement guarantees and refunds.
If you need help with your recruitment agreement, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Labour hire is an arrangement whereby a labour hire agency provides employees to a business. This agency will hire the employees, cover their pay and comply with other obligations under the Fair Work Act in place of the business. Some businesses prefer to enter a labour hire arrangement when, for example, they need a large number of employees to start on a job and don’t have the time to recruit and onboard them.
An exclusive arrangement means you will not be able to engage another recruitment agency to recruit on your behalf. In these cases, you must be realistic about whether your business can comply with the terms of the exclusive arrangement before contracting with the recruitment agency.
Recruitment agencies sometimes include a replacement guarantee in their agreements. This guarantee means that the agency will replace a hired candidate if they leave the job earlier than the period outlined in the recruitment agreement. An agency will often seek to replace this candidate with another suitable candidate. In other circumstances, the agency may offer the business a refund of the recruitment fee.
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