Many employers utilize recruitment agencies to fulfill some or all of their staffing needs. Not surprisingly, recruitment agencies often present the employer with the agency’s standard agreement. What is surprising, however, is that many employers sign the agency’s agreement without seeking any changes. Many agencies will agree to modify their agreements and employers can often obtain substantially better terms.
Each recruitment agreement must be assessed individually, but the following are issues that commonly arise and should be considered:
Two Main Types of Agreements - Recruitment agencies typically use two types of contracts: contingency and retainer agreements.
Ask for a Lower Fee -
Seek Better Payment Terms – Employers will usually benefit from modifying the standard payment terms in an agency’s agreement. The following are some modifications to consider:
Insist on a Refund if the Employee Does Not Work Out – The typical recruitment agency agreement requires the employer to pay 100% of the fee long before the employer can fully assess whether the employee will meet its needs. Recruitment agencies have a variety of approaches to handling the employee who resigns or who is terminated within a specified time after hiring. In most agency agreements, however, the agency will end up keeping the full fee. Typical agency-drafted provisions include:
Employers should seek a refund if the recruited employee either resigns or is terminated (other than for lack of work) within a specified period of time and taking into consideration these factors:
Indemnification – In addition to long-standing laws prohibiting discrimination in hiring, many jurisdictions have imposed new restrictions on employment inquiries concerning salary history, creditworthiness and criminal history. Many agency agreements contain one-sided indemnification provisions that require the employer to indemnify the agency for any damages arising out of the employer’s actions. Because the agency makes the initial decision on which candidates to forward to the employer for consideration, it is more likely that an employer may be exposed to liability for an agency’s alleged wrongdoing. Accordingly, employers should seek indemnification from the agency or make mutual any existing indemnification provision.
Disputes – Agency agreements often include a variety of provisions that come into play in the event of a dispute:
Other Considerations –
Carve-Outs – Make it clear that the employer need not pay a fee in relation to specific candidates with whom the employer had prior contact independent of any work by the agency.
Recruiter Duties – The recruiter’s obligations are often poorly defined. Ensure that the agreement specifies what the employer has to do to earn the fee. For example, will the agency do background screening of candidates?
Define the Recruitment Period – The agreement should define how long the recruiter is protected (i.e., entitled to payment) after referring a candidate. The employer should ensure that the obligation to pay is not open-ended or unreasonably long. A one-year window is standard.
Require Compliance With Applicable Law – It is important that the Agency agree to comply with all laws that apply to the tasks it agrees to undertake. For example, the discrimination laws, immigration laws, and laws that restrict criminal and credit history checks.
Most terms in standard agreements proposed by recruitment agencies are one-sided in favor of the agency. The recruitment agency may not agree to every modification an employer seeks, but employers often can benefit from carefully reviewing the agreement’s terms and seeking reasonable modifications.
If your company needs assistance reviewing a recruitment agency agreement, please contact:
|Bob Kellner||Chuck Bacharach|