The Conduct of Employment Agencies & Business Regulations 2003 (“the Regulations”) came into force on 6 April 2004. Despite the length of time that has elapsed since they were enacted and the amendments which have been made to the Regulations since there continues to be some confusion as to when payment of commission will be payable.
The Regulations were enacted with the intention of protecting persons seeking work for temporary or permanent positions referred to under the Regulations as work-seekers but they often give rise to commission disputes between the employment business or agency (referred to herein collectively as agency) and their client known in the Regulations as a hirer.
Typical examples of circumstances leading to a disputed claim for commission
There are three common scenarios which lead to a claim for commission by the agency which is disputed by the hirer. The first is where the agency introduces a work-seeker. That introduction does not result in an engagement but later on the work-seeker is engaged by the hirer usually as a result of direct contact between the hirer and the work-seeker.
The second is where an agency introduces a work-seeker but no hire takes place (at that time). Subsequently, a second agency introduces the same work-seeker and this introduction leads to a successful engagement. The second agency renders an invoice for payment of its commission which is usually paid but when the first agency discovers the engagement it also seeks payment of its commission.
The last is the question of payment of so-called “transfer fees”. These are payable where a hirer has engaged a work-seeker introduced by an agency on one of the following basis:
- On a temporary basis and then seeks to engage them at the end of the assignment on a permanent basis (known as “temp to perm”); or
- On a temporary basis and then seeks to continue to engage them through a second agency (known as “temp to temp”);
The hirer will also be liable to pay a transfer fee if it introduces any work-seeker engaged following an introduction by the agency to a new employer (known as “temp to third party”).
It is often the case that the hirer will not tell the agency of its continued engagement of the work-seeker or further introduction but it should be borne in mind that the work-seeker will often be connected with both a representative of the hirer and the agency – any change in the work-seeker’s status will usually therefore allow the agency to discover the change in employment resulting in a claim for commission.
Avoiding disputed commission claims
Are the agency’s terms and conditions incorporated?
In both the above cases in order to succeed with a claim for commission an agency will rely upon its terms and conditions. However, in order to be able to do so they must show that they are incorporated into the contract. This means they will need to be able to show that they were sent to the hirer before any liability for payment of a fee was incurred and further that they were accepted by the hirer.
Additionally, the agency will need to demonstrate that the terms were accepted by the hirer. Acceptance does not normally need to be in writing and it is not uncommon for agencies to include a clause which provides for deemed acceptance upon the reading of a work-seeker’s CV (even if sent on a speculative basis). To avoid being automatically bound by the agency’s terms it is important that you either ensure all emails received from agencies (particularly if you do not have an existing relationship) are deleted without reading them or, if you wish to at least read the work-seeker’s CV, that you take steps to write to the agency making it clear that you do not agree to be bound by their terms.
It may seem obvious but you should also ensure that you take steps to read the agency’s terms and make sure you understand them, particularly any clauses which relate to your liability to pay commission. If in doubt make sure you raise your concerns in writing with the agency.
Are the agents the effective cause of introduction?
It is becoming increasingly common for agencies to include a clause in their terms which state that their commission is payable in the event of an introduction of a work-seeker whether or not they were the effective cause of introduction – i.e. they were not responsible for undertaking the work which led to the eventual engagement of the work-seeker. In such circumstances, it may not be possible to avoid paying the agent’s commission or even two agents’ commission if the work-seeker was introduced by two separate agencies. However, as each case will turn on its own facts after the work-seeker has commenced employment it is good practice to ensure that detailed notes are taken of the hire campaign including emails showing how the work-seeker’s CV was communicated to you, how and when you reached your hire decisions and any additional input that you receive from the agency – for example, were they responsible for arranging the interview and/or assisting with formulating the work-seeker’s remuneration package? If so, consider preparing and keeping detailed notes and any written communications.
Are the agents entitled to payment of a transfer fee?
It is a common misconception that transfer fees are unlawful and unenforceable as a result of the Regulations. This is not the case. All the Regulations do is limit the circumstances when an agency can recover a fee. The specific Regulations are complex but can be summarised as follows:
Where there has been an introduction of a work-seeker by the agency but no supply
Where there has been an introduction by no supply, any clause in the agency’s terms of business will be unenforceable unless the hirer is given the option, instead of paying the transfer fee, of “extending” the period of hire, at the end of which the work-seeker will transfer without charge. There is no limit on the period of hire that the agency may seek to impose by way of extension or the level of fee payable.
Where there has been an introduction and supply (temp to perm and temp to temp)
Any clause contained in the agency’s terms which provides for payment of a transfer fee in the event the work-seeker is engaged by the hirer on a permanent basis and/or transfers to an alternative agency will be enforceable provided that the hirer is given the option to extend the hire period for the work-seeker, at the end of which the work-seeker will transfer without charge.
Additionally, the transfer must have taken place either within 14 weeks of the start of the first assignment or within eight weeks of the end of any assignment, whichever period ends later (known in the Regulations as the “relevant period”). If there is more than one assignment and there is a break of more than 42 days between assignments, this will break continuity for the purposes of calculation of the relevant period.
Where there has been an introduction and supply (temp to third party)
In these circumstances, there is no obligation on the agency to offer an extended hire period. As a result, an agency can charge a transfer fee provided the transfer takes place within the relevant period.
The Regulations do not apply to temp to third party claims where there has been no supply by the agency. Accordingly, subject to the provisions of its own terms, the agency will remain free to charge a transfer fee without restriction.
One further provision of the Regulations which should be considered when determining whether an agency is entitled to payment of commission. Under the Regulations work-seekers include any person who is a company. As a result the Regulations allow temporary workers who supply services through a personal service company to opt out of the Regulations. To be effective notice of the company’s decision to opt out must be communicated to the agency before any introduction or supply takes place to the hirer. The agency must in turn inform the hirer of the opt out notice. If notice is not given before the introduction or supply commences then they will not be effective or, if there is a series of assignments, will not be effective until conclusion of the first assignment.
Where an effective opt out notice has been served, none of the provisions of the Regulations will apply. Accordingly, the agency is free to undertaken business without reference to the Regulations. This is particularly important in the case of transfer fees.
In the leisure & hospitality industry where work-seekers are often engaged on short term contracts throughout so-called peak working periods (e.g. the summer or Christmas season) and may be engaged at different hotel/venue locations, particular care should be taken to ensure you have full knowledge of any potential work-seeker’s employment history. Make sure you identify if the work-seeker has previously worked for your business through an alternative agency and/or if any other hotel or venue within the same business (or associated business) has previously engaged them.
To speak to a member of our Leisure & hospitality team on this issue please get in touch at leisure&[email protected].
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.