Recruitment agreements and the clauses that protect your agency's fees

You have just won a new client. They need a finance manager, a warehouse supervisor or a registered nurse, and they need them quickly. Before you run a single ad or forward a single CV, the client will usually be asked to sign your standard recruitment agreement, or you will be handed their version and asked to sign it. This is the moment to check what the document actually says, because everything that happens afterwards, including whether you get paid, will be read through its words.

A recruitment agreement is the services contract between your agency and the client employer. It records what you will do, what the client will pay, when a fee is earned, and who carries the risk when a placement goes wrong. It sits alongside the employment contract between the client and the successful candidate, and it cannot override the obligations you already owe under laws such as the Australian Consumer Law (Cth) (the ACL) and the Privacy Act 1988 (Cth). The clauses below are the ones that decide whether you are paid for the work you do.

The essential clauses

The services you will actually provide

State the scope of the engagement in detail. Will you source and screen candidates only, or also conduct first interviews, check referees and prepare shortlists? Will you advertise the role, and if so, where? The agreement should answer these questions, because the client will not pay for work you did not do, and you will not be required to provide what you never promised.

• Retainer or contingency: with a retainer search, the client pays for the shortlist itself, and payment does not depend on a hire. The agreement should say whether retainer fees are invoiced in instalments as the search progresses.
• What the client will push for: open-ended wording such as "all reasonable recruitment assistance", which lets them expect unlimited work for a single fee.
• The trap: promising outcomes you cannot deliver. If your agreement or marketing says candidates will be "fully vetted" and they are not, that can be a misleading representation under s 18 of the ACL (Sch 2 to the Competition and Consumer Act 2010 (Cth) (the CCA)), which applies to conduct in trade or commerce between businesses, not just to sales to consumers.

How your fee is calculated and when it is payable

Most agencies charge either a percentage of the successful candidate's starting salary or a fixed fee, and some use a combination. The agreement must say exactly how the number is worked out: which salary components count (base pay only, or including superannuation and bonuses), whether the percentage changes with salary bands, and whether GST at 10% is added on top. It should also state who the client is for invoicing purposes, when each invoice is due, and what interest applies to late payment. A fee clause that says "10% of salary" without defining salary is an invitation to argue.

When the fee is earned: the introduction clause

This is the clause that decides most disputes, and the one most worth reading twice. Define precisely what counts as an introduction and when a placement fee is triggered, typically when the client makes an offer to, or engages, a candidate you introduced. The definition should also cover the direct approach: the client meets a candidate through you, then hires them months later without your involvement. A fee protection clause usually provides that if the client engages, within a defined window, a candidate you introduced, the full fee is payable even if you had nothing to do with the negotiations.

• The drafting minimum: an introduction window (for example, six months from the date the candidate's details were first provided) and a record of what was sent and when.
• The trap: a loose definition such as "a candidate who obtains a position with the client". If the client can argue they found the candidate independently, the fee is contestable, and the question of whether your introduction was the effective cause of the hire ends up in court.
• Why it matters: fee disputes over whether a service was provided at all are common. In Personnel Concept WA Pty Ltd v J B Adam [2018] NSWLC 19, two recruitment firms and a law firm litigated in the Local Court over whether recruitment services had been provided and what was owed for them.

Temp-to-perm and re-engagement conversions

If you place a candidate on a temporary assignment and the client later hires them permanently, the fee structure should anticipate it. A conversion clause fixes what happens: typically a conversion fee equal to the difference between the temporary placement margin already paid and the permanent placement fee, payable when the candidate is engaged permanently within a set window, commonly six months. The same logic applies to re-engagement: a client who uses a candidate for a short project, then brings them back for a longer engagement, should not get the second placement for free. Without the clause, the second engagement is simply a fee dispute waiting to happen.

The replacement guarantee

Most recruitment agreements carry a guarantee: if the placed candidate leaves or is dismissed within a specified period, usually three to six months from their start date, you will find a replacement at no additional fee, or refund the fee. Courts enforce these promises as written, so draft them as precisely as you would any other commitment.

In Screenmasters Australia Pty Ltd v Key Recruitment Pty Ltd [2013] NSWSC 1569, the agency's contract guaranteed permanent placements for six months from commencement, with the fee due within seven days of the candidate starting. When the placement did not work out and the agency did not provide the promised replacement, the client sued and recovered the fee it had paid, plus interest.

• What the client will push for: a refund rather than a replacement, or a guarantee period that runs for as long as the candidate is employed.
• The drafting minimum: who must notify whom, within what time frame, and whether the guarantee depends on the client having paid the fee on time and given the candidate a proper chance.

Who checks the candidate

Decide, and record, where responsibility for vetting sits. You may screen CVs and speak to referees, but the client is best placed to judge whether a candidate fits their business. The agreement should make it the client's responsibility to interview the candidate and run their own due diligence, and should say that you do not warrant a candidate's suitability, honesty or background. If you do warrant something, such as that you verified a candidate's qualifications, make sure the check was actually done: a warranty you cannot honour is a liability, not a selling point.

How far your liability extends

A limitation of liability clause caps what you can owe if a placement goes wrong: usually a cap on total liability equal to the fees paid, and an exclusion of indirect or consequential loss, such as the client's lost profits when a candidate does not work out. Two limits apply to how far this clause can be pushed. First, it cannot excuse misleading or deceptive conduct: s 18 of the ACL is a prohibition, not a term the parties can contract out of, and the ACCC can still act against the conduct. Second, if your agreement is a standard form contract with a small business client, the unfair contract terms regime in the ACL applies. Under ss 23 and 24 of the ACL, a term that creates a significant imbalance in the parties' rights, is not reasonably necessary to protect your legitimate interests and causes detriment can be declared void, and since 9 November 2023 proposing or relying on such a term is itself a contravention. The penalties for a body corporate are the greater of $100 million, three times the benefit obtained or 30% of adjusted turnover, and $2.5 million for an individual (s 224 of the CCA).

Permission to use the client's brand and content

To advertise a role you will use the client's job description, business information and trade marks. The agreement should grant you a licence to use that material for the engagement, and should say who owns the content you create, such as advertisements and candidate assessments. Without the licence, using a client's trade marks to promote their vacancy can expose you to an infringement claim.

What happens to candidate data

A CV will almost always contain personal information under the Privacy Act 1988 (Cth). If your agency's annual turnover is above $3 million, you must comply with the Australian Privacy Principles, including telling candidates what you collect and why, and keeping their data secure. Sending a candidate's details to a client is a disclosure of personal information, so your collection notice should cover it, and the agreement should restrict what the client may do with the data once received. Penalties for serious or repeated interferences with privacy reach the greater of $50 million, three times the benefit obtained or 30% of adjusted turnover, under the OAIC's regulatory framework. There is also a boundary to be aware of: if your business supplies workers to clients, rather than introducing candidates who become the client's employees, state labour hire licensing laws can apply. In Victoria, providing labour hire services without a licence is prohibited by s 13 of the Labour Hire Licensing Act 2018 (Vic), and a recruitment business is caught where it places workers and also procures accommodation for them (s 8).

Situational clauses worth considering

Not every agency needs every clause, but these come up often enough to be worth having in the template:

• Exclusivity: the client agrees to use your agency for all roles within a period, which suits retainer or dedicated-search work.
• Survival of fee clauses: fee obligations for candidates introduced before termination survive the end of the agreement, otherwise a client can end the contract and hire your candidate without paying.
• Non-poaching: a mutual restriction on recruiting each other's staff for a period after the engagement ends.
• Volume pricing: tiered fee scales for clients who use you across many roles.
• Client warranties: the client warrants the vacancy details are accurate and that they have authority to make the offer.

How an Artificer Legal lawyer would review your recruitment agreement

We would start with the money clauses: the fee calculation, the introduction trigger, and the conversion and guarantee terms, because those are the clauses that produce the disputes. We would push back on unlimited guarantee periods, fee triggers that depend on events outside your control, and one-sided liability caps that would not survive the unfair contract terms regime when the client is a small business. We would insist on defined introduction windows, a clear temp-to-perm conversion table, payment terms with interest on late amounts, and a survival clause. If you are the client, we would review the agency's standard form before you sign, and check three things in particular: what triggers the fee, what you get if the candidate leaves, and whether the agency can change the terms unilaterally.

Why the introduction clause decides who gets paid

If one drafting choice separates a recruitment agreement that works from one that does not, it is the definition of introduction and the fee trigger that hangs off it. It is the clause clients argue about most and agencies draft most loosely, and courts read the words as written. Before your template goes to the next client, read the introduction clause and ask a simple question: if this client hires a candidate I introduced six months from now, with no further involvement from me, will I be paid? If the answer is not clearly yes, the clause needs work.

A well-drafted recruitment agreement records the services you will provide, how your fee is calculated and when it is earned, what happens on temp-to-perm conversions and failed placements, and where responsibility for the candidate sits. It also manages the risks the law imposes regardless of what the parties agree: the ACL's protections against misleading conduct and unfair terms, privacy obligations for candidate data, and state licensing laws where workers are supplied. It cannot turn a bad placement into a good one, but it can make sure you are paid for the placements you make, and not exposed for the ones you did not cause.