Talking about Candidate Replacement Guarantees

In Brisbane recently, I had an opportunity to speak with recruiters about their terms of business. We got to talking about candidate replacement guarantees and some of the challenges that they present.

Often recruitment agencies put forward their candidate guarantees as a competitive point of difference; but after a while they begin to look pretty much the same.

One thing intrigued me. It was the idea that a competitive point of difference could be based upon what, from a client’s perspective at least, might be viewed as a service failure.

On the face of it, it’s a great approach: “Oh! That candidate didn’t work out? Let us fix it!”

It’s exactly the sort of professional response that enhances the industry’s reputation. But I wonder if it’s possible to make too much of a good thing?

By making “the fix” the primary story, is it possible to set up a narrative that focuses too much on service failure and creates an expectation of poor service quality?

So, I posed a question – being careful to keep it open and with a focus on a positive outcome.

If your key point of difference is what you say you will do when your candidates don’t work out – what does that say about what your customer can expect from your services?  How do you make sure it says the right thing?

Answers ranged between a pessimistic view that over-emphasised use of candidate replacement guarantees might actually lower clients’ service expectations to an agency’s detriment and a more positive view that a candidate replacement guarantee conveyed an agency’s confidence in its service quality – “We’re so good we don’t think we’ll ever be called on to honour it!”

I guess one has to give credit for the positive attitude.

Somewhere in between those extremes was a high risk view that the candidate replacement guarantee represents the limit of an agency’s responsibilities to its client – that it stood in place of any legal requirement to make a refund and that it was mostly defensive or protective of the agency.

I have heard it said in some quarters that it is clever to put defensive provisions in your terms of business even if they’re not going to be enforceable – because at least they will give you something to argue about. I don’t buy that. There is no point in having an argument that you are likely to lose; that may end up in a costs order being made against you; and which, if you have it, is going to damage the very relationship you say you are trying to protect. It’s much better to have reached agreement with your client; to have recorded the basis of it in your contracts; and to have agreed on how you will both provide for things that go wrong – as they may inevitably do even in the best of relationships.

So, I thought I would outline a few things that it might be important to know about candidate replacement guarantees.

10 things worth knowing

1.  A candidate replacement guarantee is most likely additional to any Australian statutory guarantee that applies.

2.  Statutory guarantees:

• that services will be provided with due care and skill,
• that they will be reasonably fit for any particular purpose that the acquirer made known to the supplier; and
• that they will be supplied within a reasonable time

apply to contracts for the supply of services under $40,000 (the cap is removed if the services are required for personal use – as some candidate services might be).

3. There are some exceptions for transport and storage contracts and insurance contracts and for professional architectural and engineering services.

4. You cannot exclude statutory guarantees by contract; but you can limit your liability to:

• supplying the services again; or
• payment of the cost of having the services supplied again (presumably by a competitor or by refund).

5. A limitation clause that does not contain both alternatives is likely to be defective – leaving the client entitled to claim compensation unimpeded by the limitation clause.

6. The limitation only works if it is fair and reasonable for the supplier to rely on it. It might not be fair or reasonable if the client does not want you to supply the services again.

7. A candidate replacement guarantee will be void (of no effect) to the extent to which it purports to exclude or modify the operation of the statutory guarantees.

8. So, if a candidate replacement guarantee provides (or has the effect) that there will be “no refund” (in a case where the statutory guarantees apply and/or the client is entitled by law to a refund) it will be void.

9. If you rely on a void provision to assert that there is no refund, you may be committing a further offence under the Australian Consumer Law – i.e. you may be making a false or misleading representation about the existence of a guarantee, right or remedy in contravention of s. 29 of the Australian Consumer Law.

10. A contravention of s. 29 attracts pecuniary penalties of up to $1.1 million per contravention for a corporation ($220,000 for an individual). It also gives rise to claims for compensation, injunctions, and other orders such as corrective advertising.

It’s important that agencies understand how this interaction works so that they can adjust their terms of business and service levels in order to maintain and deliver value to their clients. It’s a matter of achieving that balance between managing expectations, conveying confidence in your ability to supply good quality services and not getting caught out with unenforceable terms, or worse.

If you’ve not looked at your candidate replacement guarantees for a while, perhaps it’s time to do it now!

 

Andrew C. Wood