Using a recruitment agency can be an expensive exercise for employers. As a recruitment agency, you want to persuade employers that you will find the right candidate for their job role. Therefore, if a chosen job candidate fails to stay in the job, you will want to reassure employers that you can find a suitable replacement. This guarantee is known as a replacement guarantee and is usually included in a recruitment agreement. This article explains how you can draft an effective replacement guarantee.  

Why Should You Have a Replacement Guarantee?

The best case scenario is where a chosen candidate stays with the client’s company for the long-term. However, many candidates can accept a job but resign shortly afterwards, such as during the probation period. A replacement guarantee means you have to recruit a replacement candidate at your own cost. Therefore, the replacement guarantee means you may have to do additional work for no extra cost even after a successful placement.

There is no legal requirement for recruitment agreements to contain replacement guarantees. However, a replacement guarantee can help you stand out among other agencies. You may also earn the trust of potential clients who know you are committed to finding the right talent for your company.

What Should the Replacement Guarantee Include?

Your replacement guarantee is an important clause in your recruitment agreement. The clause should protect your business’ cashflow while reassuring potential clients that you are committed to finding them the right candidate. Your replacement guarantee should be clear and easy to understand to minimise misunderstandings. Here are six factors to consider when drafting your replacement guarantee. 

1. Timeline

Your agreement should state the time for when the replacement guarantee will apply. A replacement guarantee should usually span the first three months of the candidate’s employment. However, the period can be as long as six months, depending on the company’s usual length of probation period.

For example, if a candidate leaves the job within three months, the replacement guarantee means that you will have to find them an appropriate replacement candidate. However, if a candidate leaves their employment after three months, you will not be obliged to replace the candidate.

2. Exclusions

You may decide when a replacement guarantee will or will not apply in a particular situation. A replacement guarantee should not apply every time your chosen candidate resigns. Outline certain exclusions that your client needs to accept before they sign up to your services. 

For example, you could suggest that the replacement guarantee will not apply if the client drastically changes the job description. Originally, the company may have asked you to advertise for a marketing manager. However, after they interview the person, they employ them as an IT manager. They refuse to pay your fees because they did not hire the person for the advertised role. In that situation, you could argue that the replacement guarantee will not apply.

3. Redundancy

You may want to exclude genuine redundancy as a situation that triggers the replacement guarantee. You should not be obliged to find a replacement candidate if a client has carried out an internal restructure of the company. 

A genuine redundancy is where an employer does not intend to replace the employee and you cannot move them into another position within the organisation.

4. Notice

Your client should notify you if the candidate leaves their job and why they left that position. That information will help you decide whether you are legally obliged to exercise your replacement guarantee under the recruitment agreement. Otherwise, you will be wasting money and time that could be better spent recruiting candidates for other clients. 

5. Promise

Do not promise that your recruitment agency will find a suitable replacement candidate. You can still provide details of candidates to your client for them to interview. Your client makes the final call on who to employ for their business, not your recruitment agency. 

6. Refund

Some recruitment agencies may opt to provide a refund if the candidate leaves employment within a certain period. The refund amount is usually a percentage of the client’s original payment to the recruitment agency. A refund option may be attractive if finding a replacement candidate is too time-consuming or expensive. 

Key Takeaways

You are not required to have a replacement guarantee. However, most recruiters nowadays include them in their contracts. An effective replacement guarantee considers:

  • the nature of the client;
  • whether the replacement guarantee protects your interests;
  • limiting the scope of the replacement guarantee;
  • whether the replacement guarantee will work with your business model; and
  • whether a refund is more appropriate than a replacement guarantee.

If you have any questions or need help with drafting your recruitment guarantee, get in touch with LegalVision’s contracts lawyers on 1300 544 755 or fill out the form on this page.

Kristine Biason
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