What is a Replacement Guarantee in Recruitment Terms of Business?

As a Recruitment Agency, having a replacement guarantee in your contract or Recruitment Terms of Business means that you will need to find a replacement candidate at your own cost for your client. As you would be aware, replacement guarantees are very commonly used to make clients feel protected in the event the employment contract is terminated early.  

This article explains what a Replacement Guarantee is, and what should be included in your Replacement Guarantee Terms.  

What is a Replacement Guarantee?

Put simply, a Replacement Guarantee places an obligation on you as the recruiter to hire a new candidate at your own cost where the employment contract of a newly hired candidate has been terminated soon after commencement (whether it was terminated by the candidate or by your client).  

This means that you will have to conduct additional work, potentially at a loss. However, Replacement Guarantees serve as a point of distinction in the recruitment industry and may bolster your reputation by differentiating you among a competitive and, at times, saturated market. 

Why do I need a Replacement Guarantee?

A Replacement Guarantee serves to protect your client (the employer) in the event a newly hired candidate leaves their role soon after being hired, or if the candidate doesn’t meet your client’s requirements. By having such a guarantee, employers can feel confident they will not be left “high and dry” after paying the recruitment fees to the recruitment agency. 

Am I legally required to have a Replacement Guarantee?

No, there is no legal requirement for you to have a Replacement Guarantee.  

However as noted above, you may increase trust with clients by having such a clause in your Recruitment Terms of Business.

What should be included in a Replacement Guarantee?

Timeframe for replacement

Your recruitment terms should indicate the period in which a Recruitment Guarantee applies. Different recruitment agencies may have different timeframes, but the usual standard appears to be 12 weeks from the start of the candidate’s employment. You can make this period as long or as short as you like, and there is no obligation to reflect the candidate’s probation period in this time frame. 

What happens if the Candidate leaves after the timeframe in the agreement? 

If for example, you have placed a 10-week period in your Recruitment Terms and a candidate leaves after these 10 weeks – you should have no obligation to replace the candidate. Get in touch with our team to obtain specific legal advice. 

Exclusions

You also have the possibility to choose in what circumstances a Replacement Guarantee will apply. These circumstances need to be set out clearly in your written Terms of Business to avoid any miscommunication and potential disputes with your clients. 

For instance, you may insert a provision which will only allow a Replacement Guarantee to be provided contingent upon the employer paying your fees in full and on time. 

You should also consider excluding certain events in which you have no obligation to provide a Replacement Guarantee.  

Some exclusions may include: 

1. Redundancy; 
2. Unexpected Job Description Change;   
3. Change in Workplace Location or Conditions; or 
4. A Replacement Guarantee does not apply to a replacement candidate which has already been placed. 

These exclusions operate to prevent you having to find a Replacement Guarantee for events you have no control over and are therefore essential to spell out your Recruitment Terms of Business. 

Notice of departure

The employer (your client) should notify you immediately in writing when and why a newly hired candidate has left their role or is not suitable to continue their employment. Such notice will allow you to gauge whether you have a legal obligation to provide them with a Replacement Guarantee as per the Recruitment Terms. Without such notice it is possible you will be looking for a candidate you are actually not legally obliged to replace.  

Refund or Credit Letter 

Unless your Terms are drafted in that way, you have no legal obligation to provide a refund if a candidate leaves within a prescribed period. However, you may consider this option if finding a replacement is too burdensome for your business. In such circumstances, a refund or credit letter is usually calculated as a percentage of the amount paid to you by the employer by engaging your services and can vary depending on the time at which the employment is terminated. 

Key Takeaways

You have no legal obligation to provide a Replacement Guarantee to your clients. However, where you decide to do so, it is imperative that you draft your Recruitment Terms of Business in a way that is effective for your business. 

If you are looking for experienced lawyers to draft your Recruitment Terms of Business and Replacement Guarantee, feel free to contact the team at Progressive Legal by filling out our online contact form or calling our office to speak to a member of our team. 

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