‘EFFECTIVE CAUSE’ – THE IMPLIED TERM TO BE CONSIDERED BY ALL RECRUITERS

The ‘effective cause’ principle was established by courts which deemed it unreasonable for a party to pay introduction fees to more than one agent, on the basis that only one agent could have been the first to introduce a candidate or buyer. As a result, when disputes arise in an agency relationship (be it estate agents or recruitment agents), the court will generally imply a term into the contract that allows only one agent to be entitled to commission; whichever agent is the ‘effective cause’ of the transaction.

However, there is also a general principle of law that an implied term (a term not expressly agreed between parties but implied due to the parties’ actions or statute) cannot override an express contractual term (a term expressly agreed between the parties). Therefore, if a recruiter expressly revokes the ‘effective cause’ principle in its contract, an organisation may be forced to pay introduction fees to more than one agent. To achieve this, some recruitment agencies have implemented a contractual clause requiring the organisation to notify the agency within ‘x’ number of days if they have already received that candidate’s CV. Failure to do so would entitle the agent to a fee, regardless of whether it was the ‘effective cause’ of the transaction.

There is little to no case law on the effectiveness of such clauses, and any court would have to make a decision on the express vs implied term, as well as the potential unfairness of any such term.

In deciding whether to incorporate such terms, an agency will need to consider the commercial benefit of doing so; forcing an organisation to pay an introduction fee for a candidate it was already in discussions with is a sure-fire way to ensure you receive no further business with that organisation. On the other hand, it may also provide protection against organisations refusing to pay commission where a recruiter genuinely believes they have earned it. This is a fine line to tread, and it will be interesting to see if more recruitment agencies follow suit in attempting to revoke the implied term of ‘effective cause’.

This article was supplied to TBOS by our preferred legal supplier SA Law for more insights you can visit their website here https://salaw.com/views-insights/.
Subscribe to our emailing list