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Transfer fees under serious threat
Date: 18 Nov 2009
Temp to perm and temp to temp fees, otherwise referred to as transfer fees, are essential for supply agencies. Without the ability to charge fees a client could simply employ a candidate or hire the candidate through another supply agency without payment of a fee. The government wanted to regulate this in 2001 and those of you around in 2003 will recall that a balanced solution was carefully constructed after 3 years of negotiations (Lawspeed was involved in this on behalf of 65 agencies).
The result was embodied within Regulation 10 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (“Conduct Regulations”), and this allowed transfer fees to be recovered (subject to the transfer being within a limited period) if the client was also offered the option of hiring the candidate for an extended period of hire (EPH). No problem, and this has worked well for some 5 years.
Now, buried in the new proposals for the implementation of the Agency Workers Directive (“AWD”), the Government wants to change the rules. Only “reasonable” transfer fees are to be allowed, and you will only be entitled to your fees if you have offered a “reasonable” EPH . This seems inoffensive and reasonable. Or does it?
First, when is something reasonable and who decides what is reasonable?
Of course you and your client could agree that and the problem may be solved. But how many clients object to paying transfer fees on temp to perm let alone temp to temp? If there is dispute you either have to negotiate or go to Court as the final arbiter, or of course write the fee off. One way or another, your entitlement is instantly under threat.
Here’s the rub. If you go to Court, a transfer fee that is not reasonable in the opinion of a Court is one that is not properly due. Your claim is therefore unlawful under the Conduct Regulations. There is no room for the Court to substitute a fee that is reasonable, and so you are not entitled to any fee at all. You may face a complaint under the Conduct Regulations for unlawful activity and you are likely to have to pay the clients costs in addition to your own.
Even if a Court accepts the fee is reasonable it will still be open to the client to argue that the optional extended period set out in the agreed supply terms is unreasonable. Only if both the transfer fee and the optional extended period are found to be reasonable will the transfer fee actually be due. Just because terms were agreed at the outset does not trump the “not reasonable” argument, because the Court would have to look at all the circumstances. Again you may face a complaint under the Conduct Regulations for unlawful activity and you are likely to have to pay the clients costs in addition to your own.
So in the very likely scenario that clients will argue that fees are not reasonable, agencies wishing to avoid court proceedings will undoubtedly be on the back foot in any negotiations, and those bold enough to go to Court may find a Judge unwilling to agree the specific amount or percentage charge set out in the client terms of business or may feel that that EPH is unreasonable. Court proceedings are costly, and, even if you win, you never get all your money back, not to mention the lost down time from regular business.
In short, the Government is giving clients an easy way out of payment of transfer fees that they are bound to take advantage of, leaving agencies with significant losses.
Adrian Marlowe said "This does not stop here. If temp to perm and temp to temp fees are rendered virtually irrecoverable, what impact will that have on the value of contracts and thus on banking and finance arrangements? If the principle that fees must be reasonable is accepted then how long will it be before permanent placement fees are regulated in the same way?Once again ARC is leading the way on this crucial issue".
