The phrase “cash is king” was used widely after the global stock market crash in 1987 and during the global financial crisis of 2008. No doubt the phrase will also be used frequently in these current challenging times. Whilst many recruitment companies are efficient, well run businesses, one area where potential is not always maximised is pursuing disputed fees. Having an organised and structured process to follow with disputed fees could lead to your business collecting in significant amounts in fees and boosting your profits.
This article looks at some practical steps for you to consider, both in relation to internal steps you can take to reduce the risk of fees becoming disputed, and also in relation to a suggested stage by stage process at the point a fee becomes disputed.
It’s understandable to see why it’s sometimes easier to let a client ‘off the hook’ when they query a fee, as the everyday life of a recruitment business is fast paced and brings multiple challenges. The situations where we commonly see fee disputes arising are: back-door hires and temp to perm hires. The most common grounds we see raised in fee disputes are: arguments that your terms have not been incorporated and so cannot be relied upon, assertions that your introduction was not the effective cause of the engagement, and, that fee clauses are unenforceable penalty clauses.
Internal measures – prevention is better than the cure
Reducing the scope for fee disputes arising is the starting point. Most importantly you need to be able to show your contract terms apply so you can rely on the fee clauses in the terms. Things to consider to assist with this are:
Training – invest time and resources in training your consultants (including refresher training) on: understanding fully why your terms are so important, what the various provisions are that you’ll need to rely on in disputed fee cases and why, and the best steps to take to optimise your chances of proving the terms apply. This will help prevent mistakes being made (such as old terms being sent out in error).
Email footers – ensure your email footers state your terms apply to any work undertaken. If you take this step and attach a copy of your terms to emails introducing candidates as standard practice, or place a link to the terms in the footer, this will stand you in good stead.
CV footers – you can also include reference to your terms and conditions in the footer of your standard CV templates. This makes it more difficult for an end client to dispute a fee by saying that they did not know the terms applied, or had not seen them.
Process for sending terms – ensure a consistent process for sending out your terms. Ensure terms are provided alongside any CVs sent out and reference the terms in the covering email. It’s much more difficult for a client to say the terms don’t apply if they have been provided with a copy of them and they’ve been specifically referred to in emails.
Keep contemporaneous internal notes – impress on your consultants that they should make notes on your internal computer systems of any calls (they can even do this whilst on the call to save time). Such notes can be invaluable in cases which are litigated to trial, as judges prefer contemporaneous evidence in documents over oral evidence. Instilling a note making habit in your consultants will reap dividends in the long term.
A suggested process when fees are disputed
Whilst the above will help in trying to reduce fees becoming disputed, you should also have a process in place when a client disputes a fee. Firstly, you should have a Business Protection team or strategy in place to monitor circumstances when fees might become payable. This will include: checking Linked-In profiles periodically; monitoring job boards or company job advertisements if they are suddenly removed, indicating a position’s been filled; calling candidates to check in every now and again to establish where they are working; and, if you are suspicious a candidate has been engaged directly, calling the end client to try to speak with the candidate to evidence they’ve been engaged (and keeping a contemporaneous note of any such call!).
A process we’d suggest following with fee disputes is as follows:
Step 1 – gather evidence and assess your position
Step 2 – enter into early dialogue
Step 3 – raise an invoice and send a letter of claim
Step 4 – escalation – draft claim and final warning
Step 5 – commence court proceedings
Step 1 – gather evidence and assess your position – collate evidence to show the candidate has been engaged, such as screenshots of Linked-In profiles and notes of calls made to the candidate and/or the end client. Also review the background facts to establish the strength of your claim and any possible weaknesses at an early stage.
Step 2 – enter into early dialogue ¬– upon a discovery a fee may be due, speak with the end client and ask for an explanation. They may accept it’s a misunderstanding, or you will, at least, be able to understand their position and why they dispute the fee.
Step 3 – raising an invoice and sending a letter of claim – if no resolution has been achieved, send an invoice and a more formal and detailed letter of claim. This can come from you or your solicitor, but the background should be set out with evidence of the engagement, with reference to the terms and say why the fee is due. Further exchanges of correspondence may follow.
Step 4 – further escalation – a draft claim and final warning – if there is still no resolution, you can take steps to prepare a draft court claim. To save on the cost of the court issue fee initially, you can send it in draft form to the defendant to allow one final chance to find a resolution.
Step 5 – commencing court proceedings – the final step is to issue County Court proceedings to recover the sum due. This shows the end client you’re prepared to take matters further and you are essentially calling their bluff. You should note, however, that the majority of matters will settle before trial.
Always consider settlement – Throughout the dispute you should always consider making ‘without prejudice’ offers to settle. This may be a reduced fee, an agreement for the end client to pay in instalments to help their cash flow, or some agreement to apply discounts against future fees. You can be as creative and as flexible as you like in settlement, which should be contrasted with a final trial in the courts, where a judge is only able to determine if a fee is payable or not and therefore any flexibility is lost.
Ensure your terms work for you, not against you – Another issue to bear in mind is the content of your terms themselves. Having terms periodically reviewed and updated to ensure they are as strong as possible is a worthwhile use of resources and can help guard against common defences to fee claims.
Ultimately, by taking the above steps and getting processes in place, you’re looking to avoid the situation where you simply let disputed fees go without a fight, or you’re putting yourself in as strong a position as possible to succeed if the matter proceeds to a trial in the courts and maximising your chances of achieving an early settlement. Review your existing processes and be prepared to be a bit braver in pursuing fees that are disputed. It could end up bringing in some much needed cash to your business.
Jonny Scholes is a director at Pannone Corporate LLP, an experienced commercial law firm in Manchester. Pannone Corporate’s lawyers have vast experience in the recruitment sector in: commercial drafting of recruitment contracts; dispute resolution (including unpaid fees and breaches of restrictive covenants), employment advice, and corporate advice (including shareholders’ agreements, sales and acquisitions and group restructuring).
Jonny has worked with recruiter clients for over 12 years and has assisted clients recover hundreds of thousands of pounds in disputed fees. His approach is to work collaboratively with his clients to seek a resolution as quickly and cost-effectively as possible. If you have any queries arising from this article, you can contact Jonny at firstname.lastname@example.org.