Do you work in the recruitment industry? Find out how to minimise disputes leading to unpaid Transfer Fees.

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We are a leading advisor to the recruitment sector.  We work with recruitment businesses across the UK, from small specialist independents to large national agencies in the Recruiter Top 100, and pride ourselves on being a one stop shop for all their needs.  Unpaid Transfer Fees are a common problem for employment agencies.  In this series of articles Luke Tucker Harrison, Partner in the Recruitment Sector team, looks at the three typical classes of Transfer Fees, the disputes that arise from claims for Transfer Fees and what can be done by employment agencies to maximise the enforceability of these Fees.

The first in the series of articles focuses on the basics of Transfer Fees that apply in most “Temp to Perm Fees” cases, the second looks at “Temp to Third Party Agency Fees” and the third looks at the most controversial Transfer Fee, the “Temp to Third Party Introduction fee”.

Despite reports of “green shoots” the economy remains fragile. Businesses continue to look carefully at their costs and staff costs remains high on the agenda. Gone are the days where businesses would pay standard rates for permanent introductions without seeking to negotiate. Margins on temporary workers also remain squeezed.

Some businesses are seeking to put temporary staff onto payroll in order to save the employment agency’s margin. However they are reluctant to pay the employment agency’s Transfer Fees. Transfer Fees are a final source of revenue for employment agencies and they should ensure, therefore, that their systems and procedures are robust enough to enforce their Transfer Fees and avoid unnecessary and costly disputes.

What the contract should say

In order for the employment agency to be able to charge a Transfer Fee it must ensure that its terms and conditions of business (“TOB”) set out the entitlement to a fee and that the TOB comply with Regulation 10 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (“the Conduct Regs”).

A standard TOB usually includes the following clause:-

“In the event of the Engagement by the Client of a Temporary Worker supplied by the Employment Business either (1) directly or (2) pursuant to being supplied by another employment business, within either:

(a)The duration of the Assignment;

(b) 14 weeks from the start of the first Assignment (each new assignment where there has been a break of more than 42 days (6 weeks) since the end of the previous Assignment shall also be considered to be the ‘first Assignment’ for these purposes); or

(c) 8 weeks from the day after the last day the Temporary Worker worked on the Assignment the Client shall be liable, to either an Extended Period of hire or a Transfer Fee. The Client must give the Employment Business 7 days written notice in advance of the Engagement of whether it has elected to take the period of extended hire or to pay the Transfer Fee. However, where the client does not give such notice before the Temporary Worker is engaged the parties agree that the Transfer Fee shall be due.”

Regulation 10 of the Conduct Regs (“Reg 10”) requires an employment agency to set out it’s entitlement to charge a Transfer Fee in the contract with the business. In practice this requirement is satisfied by setting out the entitlement in the TOB as above. The TOB must also provide the business with an alternative, upon election, for an extended period of hire in the alternative to a Transfer Fee. There is no stipulation in the Conduct Regs as to how long that period should be but it should be reasonable so as not to be classed as a penalty. It is widely considered that the extended period of hire should be no longer than the period it would take the agency to earn the equivalent of the Transfer Fee through its margin on the supply of the temporary worker.

The Transfer Fee should also be reasonable. A Transfer Fee that equates to the usual permanent introduction charged by the employment business less a slight reduction based on the time the temporary worker has worked is also likely to be considered reasonable. Failure to comply with Reg 10 or charging an unreasonably high Transfer Fee means that the Transfer Fee would be unenforceable. An extended period of hire may also be enforceable if it was not reasonable.

Is the contract binding?

Employment agencies have different ways of drawing their TOB to the attention of their clients and incorporating them into the contract. Below are examples of common methods of incorporation:-

a) TOB are taken on an initial client visit and left as part of a client pack.

b) Following each request to supply temporary staff a standard letter is sent to the business enclosing a copy of the TOB.

c) TOB are referred to on time sheets which usually contain a declaration that reads “I accept the [Agency’s] standard terms and conditions which I understand form the basis of this transaction.”

d) TOB are referred to on an account opening form usually above the signature line where it says “I confirm that this credit account is opened subject to [Agency’s] standard terms and conditions of business, a copy of which is available upon request.”

Where Transfer Fees result in disputes the most common area of dispute is whether or not the agency’s TOB are incorporated into the contract. In the case of example (a) business often deny having received the TOB so it is critical to ensure that the agency has a record of the TOB having been left on the visit. Further unless there is evidence that the TOB, within the client pack, was bought to the attention of the business the TOB may not have been sufficiently incorporated into the contract. It is advisable, therefore, to include a contents page in the client pack and to follow up visits with a short email attaching a further copy of the terms. The email should then be retained either electronically or otherwise.

The problem with (b) is firstly that it creates an administrative cost and secondly it often takes a day or two for the letter to arrive by which time the business may already have been introduced to the temporary worker and decided to take them on permanently. The delays can obviously be avoided by sending the confirmation via email. Again a copy should be retained.

Regulation 17 of the Conduct Regs (“Reg 17”) require terms to be agreed in advance of the supply otherwise the Transfer Fee may not be enforceable even if they are subsequently agreed via method (c). Seeking a business’s agreement by method (c) occurs usually following the first’s weeks supply. If the business engages the temporary worker in the meantime it would not be obliged to pay a Transfer Fee unless TOB have been incorporated into the contract by some other means. It is arguable that an engagement in a subsequent week would result in an enforceable Transfer Fee because each assignment, concluded by a timesheet, is considered to be a separate contract.

There is no substitute, therefore, for proper account opening processes, method (d) whereby the business is provided with a standard form that clearly refers to the account being opened subject to TOB. The TOB can be printed on the rear of the form, albeit it is now common place to refer to the terms and conditions as being available on a website. There is an added advantage to this approach in that, provided the TOB include a clause allowing for them to be updated by the Agency, the business is likely to be bound by the version of the TOB that is on the website at the time the temporary worker is introduced and/or the timesheets are signed. Method (d) can and should be used in conjunction with methods (a) to (c) so as to leave no room for argument.

Having provided for a Transfer Fee (or extended period of hire) in its TOB, ensured that its TOB comply with the Conduct Regs and that its TOB were incorporated into the contract an employment agency needs to show that a Transfer Fee has been triggered. This requires evidence of an introduction or supply of the temporary work and that the temporary worker has been engaged by the business. If the engagement has been without notice the best way of securing this evidence is before broaching the subject to Transfer Fees with the business. This may involve a telephone call to the business and request to speak to the temporary worker or a call to the temporary worker themselves. Again a record of the evidence should be recorded in case the Transfer Fee becomes the subject of a dispute.

When sent an invoice for a Transfer Fee that they were not expecting businesses can react with hostility. Typical reasons for disputing the fee include the following:-

a) That there is no contractual entitlement to the fee;

b) That no fee should be payable as the temporary worker was only engaged for a short period of time;

c) That the temporary worker was engaged in a different position to that for which he or she was introduced or supplied.

Provided the employment agency follows the recommendations above neither defence is likely to afford the business with a reasonable prospect of success in defending a claim bought for the Transfer Fee. In circumstances where proceedings are issued for the collection of the fee the employment agency should be entitled to summary judgment without the need for a full hearing of the claim.

Case Study
Debenhams Ottaway were instructed by an employment agency in connection with a claim for a Transfer Fee against a firm of Solicitors based in Liverpool. The employment agency had supplied a temporary worker to work as a legal secretary. It so happened that she was also qualified as a barrister but had been unable to secure work as a barrister. After a few weeks the firm of solicitors, impressed with her ability, decided to offer her a job as an employed barrister. The employment agency accordingly sent an invoice for a transfer fee.

The firm defended the claim on the basis that (a) it had not signed a contract, (b) that if the standard TOB applied the relevant clause that provided for a Transfer Fee was onerous and not sufficiently incorporated and (c) she had been engaged in a different position to that for which she was introduced. Having been satisfied that the TOB were incorporated by reference on signed timesheets (the engagement was fortunately after several weeks supply) the District Judge granted summary judgment against the firm of Solicitors.

The District Judge commented, however, that had the temporary worker been engaged during or following her first week of supply then the agency would have had to have show incorporation of its TOB prior to supply and that would have required a oral evidence from a member of agency staff and a full hearing with the associated costs.

For further advise about your business processes, terms and conditions or the recovery of fees please contact Penny Daisley, Debt Recovery Manager in the Recruitment Sector Team, Email: ped@debenhamsottaway.co.uk
Tel: 01727 738246