This article is the second in a series of articles concerning transfer fees. For a general background on transfer fees please see the first article in the series, “Maximising profits through transfer fees”.

This article focuses on the circumstances in which an employment business can charge a transfer fee when it’s temporary staff are transferred to a rival agency. With businesses increasingly looking at their costs, and the cost of staffing being high on the agenda, it is unsurprising that businesses look to control or decrease the margins that they pay for  the supply of temporary staff. This often takes the form of a transfer of temporary staff to a rival agency or the interposing of a Managed Services Provider (“MSP”).

The transfer of temporary staff in this way is perfectly legitimate but under most standard employment business contracts or terms of business, the employment business is entitled to a transfer fee or to charge, upon election by the client, an extended period of hire. The Recruitment Employment Confederation (“REC”) standard term reads as follows:-

“The Client shall be liable to pay a Transfer Fee if the Client Engages the Temporary Worker either directly or through another employment business [...]

If the Client wishes to Engage the Temporary Worker either directly or through another employment business, without liability to pay a Transfer Fee the Client may, on giving one week’s written notice to the Employment Business, engage the Temporary Worker for the Period of Extended Hire”

In accordance with Regulation 10 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (“Conduct Regs”) an employment business  contract or terms of business must offer, in the alternative, an extended period of hire. Further transfer fees or extended periods of hire can only be charged if the engagement or transfer takes place within the relevant period specified in Regulation 10 of the Conduct Regs. For further commentary on the wording of the contract and/or the way in which terms should be incorporated into the contract please see “Maximising profits through transfer fees”.

The REC standard terms suggest that transfer fees and the duration of an extended period of hire are drafted on a sliding scale basis as follows:-

The reason for the REC’s suggestion of a sliding scale is based on the principal that an excessive transfer fee or unduly onerous extended period of hire could amount to a penalty at common law which would not be enforceable. Employment businesses should be able to take comfort, however, from Euro London Appointments Ltd -v- Claessens International Ltd [2006] EWCA Civ385 where the Court of Appeal declined to interfere with the terms of the recruitment contract where it was alleged to be a penalty.

Whilst there may be good commercial reasons to agree a sliding scale for both transfer fees and extended periods of hire these are normally negotiated on the basis that there is an ongoing commercial relationship between the parties. During the course of an ongoing commercial relationship an employment business is usually prepared to allow the occasional engagement or transfer of a temporary member of staff on a reduced or free of charge basis. Where a business relationship comes to an end and a business is seeking to either engage or transfer the entire work force the commercial rationale behind the discounted fees is no longer relevant and employment businesses should, in these circumstances, seek to protect their rights to charge full transfer fees or enforce full extended periods of hire. This can be achieved by, for example, limiting the number of temporary staff who can be engaged or transferred on the discounted rate.

Over the last 3 years we have seen an increase in both transfers to rival agencies and the introduction of MSPs. Local authorities and large companies are increasingly employing MSPs to manage their temporary staff. If employment agencies have the right contractual arrangements in place they will be in a position of strength when it comes to negotiating the terms of the transfer of staff and/or the terms of the contract with the MSP.

Case Studies

Debenhams Ottaway were instructed by an employment business who supplied a significant number of temporary staff into a meat packing factory. The temporary staff included a specialist hygiene team who could easily have been placed with another factory due to their specialist skills.

As a result of a costs cutting exercise the factory, without consultation with the employment business, transferred the entire temporary staff workforce to a rival agency. The employment business rendered an invoice for 56 transfer fees and when that invoice was not settled it commenced proceedings against the factory.

The employment business had provided for a sliding scale of transfer fees and whilst the claim ultimately settled for a substantial sum the employment business had to concede a significant reduction on its invoice due to the factory owner relying on a sliding case.

Debenhams Ottaway acted for another employment business when it’s local authority client engaged its staff via another agency as a result of the employment business not being willing to agree the onerous terms of a MSP contract. The employment agency accordingly rendered transfer fees. The local authority originally contested the claim because the finance department claimed that there was no purchase order for the transfer of the staff. Following the issue of proceedings, however, the claim settled in full with the employment business also recovering interest, statutory compensation and costs.

For further advice about your business processes, terms and conditions or the recovery of fees please contact Luke Tucker Harrison, Senior Associate Solicitor in the Recruitment Sector Team on 01727 735639 (DDI) or email lth@dolegal.co.uk.