Shut the Backdoor

LEGAL FOCUS – Barry Cullen, solicitor and director of IntroPROTECT on the problem of fee disputes.

We don’t like to talk about it, but the truth is that as long as there are recruiters, clients and candidates; there will always be backdoor hires and fee disputes. It’s an inherent risk for any recruiter.

When clients dodge agency fees by sneaking candidates through the backdoor; it’s not just unfair, it damages relationships all around. Why engage with the agency if you’re not willing to pay for their expertise? Despite the obvious wrongdoing, it’s more common than you might think, with an estimated £140,000 in fees lost every day in the UK.

This practice wouldn’t be accepted in any other industry. Nowhere else would people be expected to work hard, successfully deliver their goods or services, but not be rewarded or recognised for their efforts. Aside from the considerable loss of revenue it represents for recruiters, it demonstrates a fundamental disregard for the crucial role recruiters play and value they bring to their clients. 

A total of 86 per cent of agency bosses worry about losing fees through backdoor hires and contractor overstays/re-engagement and it’s a justified concern when four to seven% of net fee income is lost annually by the average agency to these underhand practices. With a whopping 72 per cent of recruiters admitting they feel they are not equipped to identify or recover lost fees; it’s undeniably an area that requires education and attention.

What are backdoor hires?

Backdoor hires occur when a client engages a candidate introduced by a recruiter, but without paying the agreed introduction fee. There will always be the temptation for clients to engage candidates through the backdoor due to having multiple agents representing the same candidate or even just through poor process management by clients; but what is the law?

It all starts with the contract; primarily was there one? Most recruiters are well versed with the concept of ‘deemed acceptance’, so while it certainly helps to have signed terms of business; it’s not crucial. If your client was on notice of your terms of business and their conduct demonstrated acceptance (typically by interviewing or engaging your candidate), then you’ve usually got a contract. Even without formal terms, an exchange of emails with the necessary elements (offer, acceptance, consideration, certainty and an intention to be legally bound) can result in an enforceable contract and with the keyboard warriors of modern recruitment, there is usually a time and date stamped message trail – we have a case currently where the contract was agreed over Linkedin!

With the piecemeal evolution of recruiters’ terms of business and the ‘borrowing’ of standard documents from previous employers though, the rules of the contract are often not what common sense might dictate. The key elements to understand and ensure are watertight include the definitions and provisions for ‘introduction’, ‘engagement’, ‘fee calculations’, ‘payment terms’ and ‘notification obligations’ where the candidate is already in consideration by the client.

Get used to the concept of ‘effective cause’ because it isn’t always who sent the CV first that gets paid. The Courts will often imply this requirement into a recruiter/client contract, so that the difference between winning and losing can (but far from always) come down to which introduction caused the engagement.

It doesn’t have to happen

There seems to be an acceptance that backdoor hires are part and parcel of recruitment life; with recruiters resigned either in fear of upsetting clients or resigned to a negative philosophy. That doesn’t have to be the case, so what can be done to recover, detect and prevent lost fees?

PREVENT: The best way to recover lost fees is to stop them from happening in the first place.

Get your house in order – recruiters who run a tight ship are less likely to suffer the risk of backdoor hires. Watertight terms of business covering backdoor hires, contractor re-engagement and third party introductions is key; as is sending the terms out.

Do your job – Terms already agreed with the client? Great, now comply with the terms when introducing candidates. CV has to go on a portal? Then use the portal. Introduction has to go through HR? Then make sure the introduction is going to the right inbox. Even if you sell in directly to the hiring manager in parallel (assuming direct contact is allowed), just don’t give them an excuse. No terms in place? Then do yourself a favour and send them out with every introduction.

Mailshot teasers – This won’t be for every recruiter or even some industry verticals; if you have a banging candidate that you want to bring to market, they must be worth the twenty minutes preparing a killer summary pitch email. Save sending the actual CV for clients that bite on your teaser, then the introduction has been invited and the candidate’s identity protected.

DETECT: You won’t know how big a problem you have unless you are policing your introductions/contract finishers.

Know your market – if you know everybody and everything about your market, then you will know when your candidate overstays or moves to the client you had them interviewing at three months ago.

Don’t ghost candidates – if the candidate was good enough to get to interview, then they are worth keeping in touch with. Forget or avoid giving them feedback at your peril; because the other recruiter they are working with certainly won’t and no prizes for guessing who they go back to (with an updated CV) next time they are in the market.

Police your Introductions/Contract Finishers – Take the time to keep an eye on your candidates; check updated CVs against previous interviews/assignments and don’t be afraid to ask questions.

RECOVER: Client relationships are the lifeblood to your business, but so is getting paid.

Keep the candidate on side – the temptation to blame the candidate can be irresistible, but they often don’t know what happened and when they do, handled well, they will be your best source of insight/evidence or even support your claim.

Avoid immediate threats – approach the client on the assumptive basis that the fee is due, but an immediate threat of legal action isn’t usually the best first step and is a surefire way to lose the client. Give the client a get-out-of-embarrassment-free card by approaching them in a great news on the hire manner; save threat escalation for if they dispute the fee.

Be equipped for the usual objections – time and again we see the same arguments from clients, be ready for each of them:

“There wasn’t a contract.” – Having a signed copy of the terms, the email chain where terms were agreed or evidence that shows the client was on notice of the terms and accepted by interviewing or engaging the candidate will get you off to a good start.

“We already knew the candidate, we received the CV from another agency first and/or you weren’t the effective cause.” – The client may have known them, but being able to evidence that it was your work that ultimately led to the engagement is crucial here. Keeping good records (right to represent emails, emailed interview confirmations and so on) and keeping the candidate on your side are key.

“If you pursue this then we won’t work with you again.” – Do you really want to work with non-paying clients? If you do, then use it as an opportunity to show value and improve the relationship. Consider alternative resolution, maybe offering credit against future hires or writing off the fee for guaranteed/retained/PSL business in the future (but beware the carrot dangle, the future business must be real!).

Be prepared to enforce through the Courts, with a good claim and evidence it is worth the effort. Under one per cent of fee disputes ultimately result in a trial, but you’ll need to be tooled up with evidence to convince a judge that you are entitled to the dodged fee. Not just the paperwork to prove the candidate introduction, but also that terms were in place and any available emails, documents and witnesses to confirm what took place.

Much of this you can do yourself, but your clients can also recruit for themselves; if only they had the time and expertise. Working with a trusted partner that is an expert in the recruitment industry and can support recovering, detecting and preventing backdoor hires and fee disputes results in better outcomes while you focus your time on more deals.

Backdoor hires will undeniably keep happening, but that doesn’t mean letting the client get away with it – recover those fees and let’s not just shut the backdoor, let’s get it locked and bolted!