When your business is growing, you will need to hire more employees to keep up with client demand. A recruitment agency can help you with hiring the best talent to accelerate your growth. Before signing up to their services, you should review their recruitment agreement. This article explains what your business should look out for in a recruitment agreement.

Nature of Arrangement

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 to 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 to 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 will expect the recruiter to perform;
  • the cost of those services;
  • when you have to pay for those services.

Identify the situations where you have to owe the agency money. For example, some agencies require payment if they find a candidate for you, while others require payment for marketing your position.

Exclusivity

Some recruitment agencies require that you only use them to recruit for a specific job, especially if they specialise within an industry. Exclusivity means that 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 failed to provide appropriate services or find a suitable candidate within a certain period.

Introduction of Job Candidate

Recruitment agencies obtain their fees from “introducing” you to candidates.  The recruitment agreement should set out when a recruitment agency has “introduced” a candidate.

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.  

Fees

The recruitment agreement should outline when you have to pay a fee to the recruitment agencies. 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);
  • if you engage a candidate and re-engage them within a certain time, where re-engagement means you have to pay another set of fees; and 
  • if you 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

Disbursements are additional costs that an agency incurs for carrying out their services. For example, agencies must pay a fee to online job platforms such as Seek to list your job position. If that fee is classified 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 hired 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 you have substantially changed the job description. 

Check your recruitment agreement 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?

Key Takeaways

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:

  1. nature of the arrangement;
  2. reasons for exclusivity;
  3. definition of introducing job candidates;
  4. total fees payable for services;
  5. cost of disbursements; and
  6. scope of replacement guarantees and refunds.

If you have any questions or need assistance with reviewing your recruitment agreement, get in touch with LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

Kristine Biason
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