An Introduction to Contract Agreements

A recruitment agency contract agreement defines the relationship between a recruitment agency and its client. It sets forth the terms to which the recruitment agency and the client must adhere to in their business transactions. As each individual agreement will have different contract terms , the agreement acts as a legally binding contract should a disagreement arise. Other names for a recruitment agency contract include a retainer agreement or a search agreement.
A recruitment agency contract generally covers the remuneration that the recruitment agency will enforce for its services. The services offered by the agency will also be stated along with any special services. The recruitment contract should set forth the duration term of the agreement. If the recruitment agency finds an individual for immediate hire by the client, this should be clearly stated. If the client has the opportunity to review several candidates, this should also be specified. The contract should also allow for the client to give input into the type of candidate they are looking for and the candidate should have certain qualifications.

Key Elements in a Typical Recruitment Contract

Although each recruitment agreement will be different and tailored to the needs of the parties it is a good idea that the following are all incorporated:
The Parties’ Details
As a minimum the agreement should contain the parties’ names and addresses and it obvious (but nevertheless frequently forgotten) to state exactly who the ‘Client’ is and who the ‘Agency’ is.
Definition Clause
There should be a definitions clause early in the agreement identifying the key terms used throughout the contract such as the ‘Client’, the ‘Agency’, the term of the contract, fees, expenses, exclusive addresses and applicable law.
The Services
The agreement should describe the services to be provided by the Agency. This will normally include sourcing, screening and checking candidates as well as follow up services until commencement of employment. If further services are to be provided, these should be set out in detail.
Fees and Expenses
The fees and expenses for the services provided by the Agency should be clearly set out in the agreement.
Dispute Resolution Procedures
Dispute resolution procedures are normally included at the end of the agreement and are critical to the smooth running of the contract.
Confidentiality
There will always be both Client and Agency confidential information under the contract and it is important to draft a confidentiality provision to protect this fully.
Liability and Indemnities
There should be appropriate liability and indemnity clauses in the contract to protect the Agency as well as appropriate wording to limit damages to an acceptable level.

Legal Obligations and Statutory Requirements

Recruitment agencies in the UK are legally required to comply with various pieces of employment legislation when contracting with their clients. At a bare minimum, recruitment agencies must ensure that their Model Terms include all of the relevant statutory terminology. However, adopting the right terminology is only the start – recruitment agencies must also ensure that they are compliant with relevant legislation on an ongoing basis.
The principal pieces of legislation that affect recruitment agencies are: The Agency Worker Regulations (AWR), The Conduct of Employment Agencies and Employment Business Regulations (Conduct Regulations), the Transfer of Undertakings (Protection of Employment) Regulations (TUPE), the Employment Rights Act 1996, the Data Protection Act 1998, Sale of Goods Act 1979, Health and Safety at Work Act 1974, Asylum and Nationality Act 2004 and the Working Time Regulations 1998.
Recruitment agencies and clients must also consider how the use of agency workers will impact on their contractual obligations in relation to existing employees. The Client Terms are also used by recruitment agencies to comply with other requirements of the Conduct Regulations, including the requirement to ensure that contract terms between recruitment agencies and clients permit information sharing and prohibit the direct engagement and payment for temporary labour to circumvent this prohibition.
Clients must also bear in mind that they could be liable for the actions of any agency workers if they fail to comply with the requirements of the Agency Worker Regulations.

Common Terms Substantiated in Recruitment Agreements

It is common to include clauses in a recruitment contract agreement with a recruitment agency which relate to the following issues:
Confidentiality
This is intended to prevent either party from disclosing information (generally relating to candidates or clients) to third parties. This is sometimes referred to as a non-disclosure clause. Under English Law, an employee has an implied duty of confidentiality during and after the termination of their employment. This means that even if the recruitment agency contract agreement does not include a confidentiality clause, the agency must keep confidential any such information it becomes aware of in the course of its employment with the client.
Non-compete
This is intended to prevent the agency from directly approaching the client with a view to recruiting for it, the same candidate it has placed with the client. If the client suspect such an approach, they may terminate their agreement with the agency for breach of contract and/or sue the agency, which could, depending on the circumstances, claim the defence of justification, or the defence of independent contractor.
Termination conditions
These are likely to provide that a notice period should be served when either party wishes to terminate the agreement. The typical notice period is between one month and six months.

Negotiating Terms and Conditions of a Contract with a Recruitment Agency

A recruitment agency’s standard form agreement may not be sufficiently detailed for a business’s individual circumstances. When representing a client in negotiating the terms and conditions of a recruitment agency contract, we advise clients to ensure that the main areas of concern in the agency/third party relationship are covered in the agreement. Below is a brief overview of the key points to look out for:
Scope of services – the contract should clearly outline what services are to be provided. This may include temporary hire, permanent recruitments, payroll and other contingent staffing services. If your business intends to use the agency as an exclusive supplier of services, this should be stated in the agreement. Consideration should also be given to whether the scope of services may change or develop over time, for example, if your business opens a new office with a different recruitment needs, it may make sense to carry out a review of the arrangement.
Fees – it is of vital importance to ensure that the fees set out in the agreement between your business and the agency are appropriate for your business needs. For example, if your business agrees to pay a permanent recruitment fee, it may wish to specify the amount of the permanent recruitment fee, the timing of payment and the circumstances in which the fee becomes payable, for example when the employee starts employment and/or when the employee passes their probationary period of employment. Agencies will typically provide a discounted fee to a business for each additional placement of a candidate at any time after the first introduction of that candidate (often known as a "rebate"). Your business may wish to ensure that the timeline of a rebate is clearly set out in the agreement, for example a typical industry standard rebate is often calculated on a sliding scale based on the timing of the permanent recruitment. Your business may want to consider if a reduced rebate may be offered for subsequent placements of that candidate within a certain time period (for example, within 6 or 12 months) to maximise your business’s potential to use the agency for more than one recruitment of the same candidate.
Termination – most standard recruitment contracts contain provisions allowing either party to terminate the agreement by giving advance written notice . In addition to these provisions, your business can negotiate the inclusion of certain conditions to the continued performance of the contract which, if not met, give your business the right to terminate without notice. Your business may also wish to consider requesting a right to terminate if an employee is made redundant or if your business relocates, for example. Negotiating the rights of parties in ending a recruitment agency arrangement is a good time to assess the viability of a longer-term project or if the parties are agreeing to a temporary arrangement.
Intellectual Property (IP) – the majority of recruitment contracts include a general clause which states that all intellectual property developed in connection with the contract belongs to the agency. This is standard practice and is generally acceptable but your business may wish to specifically state in the agreement that all intellectual property created in connection with the contract automatically vests in your business. For example, if your business has drafted a specially designed recruitment logging system, this should be specifically protected in the agreement to ensure it is not inadvertently assigned to the agency.
Key personnel – if you are working with an external resource manager in the agency, your business may negotiate in the agreement that the resource manager is considered the key personnel allocating resources to your business. Your business may want to ensure that if the agency wishes to change the resource manager, your business must be notified in writing and agree the new resource manager at least two weeks’ prior to the change taking effect.
Liability – your business should request that the agency provides appropriate indemnities to your business. For example, if your business pays for a candidate’s relocation package, this should be properly documented in the agreement and the agency should agree to indemnify your business in the event the employee fails to stay for the minimum term specified as part of the relocation agreement. Depending on your business’s size, level of risk, services to be provided and company policy, your business may want to ask for limitation of liability (or exclusions of certain types of consequential losses, for example).

Disputes within Contract Agreements

Resolving Disputes In Contract Agreement
Where it has not been possible to amicably resolve a dispute between the Company and the Agency, the following procedure will apply:

• The Agency will have at least 14 days to respond in writing to any letter of complaint sent by the Company.
• The Company will then have a further 14 days in which to confirm in writing its position as to any remaining areas of disagreement arising from the Agency’s written response.
• After receipt of the Company’s confirmation, the Agency will have a further 14 days in which to respond in writing to any other remaining areas of disagreement notified by the Company.
• The Company and Agency, if they wish to pursue their claims or defences, will then seek mediation using the services of the Centre for Dispute Resolution with a view to resolving the matter within 60 days after the agency has had notice of the dispute. Either party may elect not to participate in the process.
• If the mediation is unsuccessful, both parties can then elect to refer the dispute to Arbitration or the Court.

Key Considerations in Managing Contracts

It is of course important that both the business and the recruitment agency understand the terms that have been agreed, which for both parties will include periods for statutory notice, rights to terminate during the initial trial period, and service charge or commission arrangements.
There are various types of contract which can be entered into between a recruitment agency and an employer where recruitment services are engaged, and it is not appropriate to attempt to outline them all here as they are too numerous to mention. However, the two contracts which are most commonly entered into are:
i) Temporary Worker Assignments (Protected by the Agency Workers Regulations).
ii) Permanent Recruitment (Protected by the Conduct Regulations).
In addition to reviewing the terms of the contract, and the agreement you enter into, it is also advisable to check other internal policies and procedures to make sure you are not introducing any conflicts. For example, agreements with recruitment agencies may contain restrictive covenants (for example non-poaching and soliciting) which may impact on your own obligations under internal policies or which you may impact on your own internal team.
Finally , approving a contract entered into with a recruitment agency via your own online/automated system (in the same way an employee would approve their own holiday request) is risky and it is not recommended to use online/automated systems to approve matters which involve authorisation from the business.
If you are responsible for managing recruitment agency contracts your organisation as a whole may have its own project or contracted management system which is used to manage contracts with suppliers, however, recruitment contracts are a separate and distinct matter when it comes to approval. You should therefore always seek to review the terms of the contract which a recruitment agency draws up and ensure they are appropriately approved through the business.
When entering into a contract, it is important that you stay on top of your employment agency contracts and do not treat them as a "tick box exercise". For example, whenever a recruitment agreement is negotiated and entered into, details of the contract and the key terms should be added to a spreadsheet or database (depending on what the business uses) which can be used to help compare contracts held with different recruitment agencies.
It is advisable to keep track of when contracts are due to expire and where they can be renewed. Again, this can usually be managed through a database/spreadsheet, and whoever manages these contracts should be responsible for following up with management and HR to renew and/or renegotiate contracts as necessary.