The battle of the recruitment agencies: who gets paid?

A problem can arise where two (or more) recruitment agencies pursue one hirer for an introduction fee in relation to the placement of a permanent candidate.

Clearly, the hirer will not want to pay two introduction fees for one candidate and the Courts will try and avoid that outcome where possible. So, the question arises: which recruitment agency is entitled to be paid?

The question may be answered by the terms of any written contract that is in place between the recruitment agency and the hirer and so that should always be the starting point.

Indeed, if there is no contractual relationship at all between an agency and a hirer and the candidate’s details were provided speculatively but ignored (or rejected) then it is difficult to see how that agency would be entitled to a fee in any circumstances.

However, these types of situations are not often clear-cut in practice.

The “effective cause” principle

The Courts have developed the “effective cause” principle, a primary aim of which is to try and avoid hirers being obliged to pay an introduction fee to more than one recruitment agency.

The effective cause principle isn’t limited to just recruitment agency relationships but applies to many other kinds of agency relationships too, such as estate agents. However, this article focuses on how the principle applies in relation to permanent recruitment introduction fees.

Subject to the terms of any written agreement between the agency and the hirer, a recruitment agent’s entitlement to an introduction fee generally depends on whether the services that the agent provided were the “effective cause” of the candidate being placed with the hirer. 

To determine whether an agent's work was the "effective cause" of the engagement of the candidate, the question is effectively whether the recruitment agency claiming the fee is the one that actually brought about the relationship between the candidate and the hirer.

Whether an agent is an "effective cause" will depend on the facts of each case and so there are no hard and fast rules, unfortunately. However, it is to be noted that the Courts are generally unwilling to find that an agency should be entitled to an introduction fee if it has merely provided the hirer with the candidate’s details and done little else when another agency has actively introduced the candidate to the hirer and done all the hard work in arranging an interview, negotiating between the parties with the result that the candidate is then engaged by the hirer.

How to try and avoid these types of difficulties

From a recruitment agency’s perspective, well drafted terms and conditions of business are very important, as a clause reflecting the “effective cause” principle will generally only be implied where the written terms of any contract do not deal with the point.

An agency’s terms and conditions should be brought to the hirer’s attention (and accepted by them) right at the outset of the business relationship and before any candidates’ details are provided to a potential hirer.

Recruitment agencies should also try to ensure that the introduction of any candidates is actively followed up (for example to arrange interviews) in order to stand a better chance of demonstrating, if needs be, that they are the “effective cause” of a candidate being placed with a hirer.

From a hirer’s perspective, it is sensible to clearly and promptly reject a duplicate candidate introduction from an unsuccessful recruitment agency so that there is less scope for ambiguity as to which agency effected the introduction.

These steps won’t guarantee that there won’t be any disputes about which agency is the “effective cause” of a candidate being recruited, but they can help to reduce the chances of such disputes arising.

If you wish to discuss any issues raised in this blog, please contact Oliver or a member of our Litigation Team.