Operating a recruitment agency means acting as the middleman between two parties:

  1. your client (who wishes to engage an employee); and
  2. the candidate (who wants to find work).

If you operate a recruitment agency, you need to protect your business from being excluded from the agreement between your client and the candidate. This article explains why a recruitment agreement between you and your client is an essential protection for your recruitment agency.   

Why is a Recruitment Agreement Important?

A recruitment agreement allows you to clearly set out your and your client’s obligations. Above all, the agreement can help to ensure that:

  • the client pays for the recruitment services;
  • your client does not go directly to the candidate without your involvement (and if they do, that you get paid for it); and
  • your client takes responsibility for checking if a candidate is suitable for their business.

What Are Some Key Clauses in a Recruitment Agreement?


Recruitment Services

You should include a detailed description of the services you will provide. For example, will you only be screening candidates and sending them to your client? Or will you also be conducting initial interviews, calling referees or providing training?  A description of the services should be set out in a proposal or a quote.

Advantage: Specifying the exact scope of your recruitment services ensures that you will only be required to provide what you have expressly agreed to provide.

Retainer Services

In addition to including a description of recruitment services, you should also indicate whether you will provide retainer search services. A retainer search often involves a client engaging you to produce a shortlist of candidates only. A retainer search differs from a standard recruitment engagement as payment will not depend on your client hiring a candidate.

Advantage: Retainer services are often not dependent on your client hiring a candidate. Including a clause explaining retainer services will ensure that you are paid accordingly for providing a shortlist of candidates.

Calculation of Fees

While some recruitment agencies operate on a fixed-fee basis, others also work on a commission basis. The way that you calculate your fee should be set out in the recruitment agreement. For example, many agencies calculate commission according to a candidate’s salary. The percentage of the commission may also increase proportionately to the candidate’s salary.

Advantage: By ensuring that you openly express the method for calculating your fee in the recruitment agreement, you are reducing the risk of disputes about payment arising.


Introducing Candidates

Your recruitment agreement should explicitly set out the circumstances that will result in the payment of a fee. Typically, a price is paid for the introduction of a candidate to a client.

However, if this does not immediately result in employment of the candidate, whether payment is required may be unclear. For example, if you introduce a candidate to a client who decides to hire the candidate four months after the introduction, you should have the option to request payment of your fees for introducing candidates.

Advantage: A good recruitment agreement should ensure that clients pay you for introducing them to candidates. It should prevent the client from going directly to the candidate to avoid paying your fees.

Re-engaging Candidates

A recruitment agreement should also set out the possibility to claim your fee if a client re-engages a candidate within a specified period. For example, a client may engage a candidate for a short-term project and pays your fee (which will likely be a lesser fee). The same client may later wish to hire the candidate on a full-time basis (which will probably be at a higher fee).

Advantage: By including a clause requiring a client to pay your fee if they re-engage a client, you will ensure that the client pays the full amount that you are owed.

Replacement Guarantee

Depending on the business model of your recruitment agency, you may be providing your clients with a replacement guarantee. This is a guarantee from you to find a replacement for a candidate if the candidate leaves their employment within a specific timeframe.

Advantage: By including an express replacement guarantee clause, it will ensure that your obligations regarding a replacement are explicitly set out.


Limiting Your Liability

Candidate Information

A recruitment agreement should limit your liability for any candidate information that you provide to your client. You may do the appropriate checks on the information a candidate provides, however, there may be some candidate information you cannot validate.

Advantage: This will limit your liability to your client if a candidate provides you with false or incorrect information.

Client Decisions

A recruitment agreement should limit your liability if a client hires a candidate without thoroughly checking the candidate’s suitability. It should be your client’s responsibility to determine whether a candidate is appropriate for their business.

Advantage: This will limit your liability if a client hires a candidate without undertaking their assessment of the candidate.

Intellectual Property

As your business will likely be required to publicise jobs on behalf of your client, the client should provide you with permission to use any job description, information about their business or trade marks.

Advantage: This will ensure that you are not in breach of your client’s intellectual property rights.

Key Takeaways

As recruitment agencies have different business models and arrangements with their clients, it is essential that your recruitment agreement reflects the way you wish to operate. Furthermore, it is important to ensure that:

  1. your client does not have a way to avoid engaging you or paying your fee;
  2. the obligations of both parties are set out in the recruitment agreement; and
  3. you have permission to advertise and promote your client or any relevant job description. This will make it easier for you to recruit an appropriate candidate as you can use a variety of mediums to search and recruit.

If you have any questions, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

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