Are recruiters left without a recourse?

Call it what you will, backdoor hire, backdoor placements – the fact remains that you have not been paid your dues. The practice of backdoor hiring is becoming increasingly prevalent in Malaysia against the backdrop of an increasingly capricious outlook for many businesses.

In this article, we will explore various ways in which recruiters may increase the odds of recovering their fees from defaulting clients within the context of backdoor hiring.

 

Backdoor hiring Defined

Simply put, it is where a recruiter introduces a candidate to a client, and the client later takes on the said candidate surreptitiously in order to escape its liability to pay the recruiter. When confronted, the defaulting client would more often than not, fall back onto one of these responses: –

• The candidate was introduced by someone else;
• The candidate was introduced by an internal referrer; or
• An outright denial of the recruiter’s contribution.

 

the Law on backdoor hiring in malaysia

Apart from deploying the help of LinkedIn and dedicated software to unearth backdoor hires, many recruiters are left clueless as to how Malaysian Laws may come to their aid.

It helps to mention that the relationship between a recruiter and its client is often (and ought to be) predicated on a contract, hence the recruiter will invariably be required to prove the following elements in order to succeed in his claim before a court of law: –

1. Existence of an agreement between the recruiter and the client;
2. The agreed terms of such agreement;
3. Fulfilment of payment condition;
4. Breach of the said agreement; and
5. Amount due.

Note that (1), (2) and (5) can easily be proven with a properly executed contract. In most backdoor hiring cases, (3) is usually where the contention lies. There isn’t a lot of cases in Malaysia to shed light on this issue but thanks to Section 3 of the Civil Law Act 1956, we are allowed to refer to English cases. In deciding such cases, the English Courts have generally applied what is known as “the effective cause” doctrine.

 

Effective cause explained

“Where an agency contract provides that the agent earns his remuneration upon bringing about a certain transaction he will be entitled to such remuneration if he is the effective, not necessarily the immediate cause, of the transaction being brought about. Whether there is a sufficient connection between his act and the ultimate transaction must be ascertained from the facts of the case”.

The excerpt above was taken from the case of Chew Teng Cheong & Anor v. Pang Choon Kong [1983] CLJ REP 86. The effective cause doctrine is recognized in Malaysia and is often applied in cases of commission claims by real estate agents. By extension of this principle, a recruiter can be said to be entitled to its placement fee if it is the effective, though not necessarily the immediate cause, of the hiring of the candidate introduced by it. Whilst the principle may appear straightforward, our experience shows that the following circumstances could still pose a threat to the recruiter’s case: –

• Lack of paper trail to prove “effective cause”;
• Lapse of time between introduction of candidate and actual hiring;
• Abuse of company group identities by client.

 

Ways to increase odds of recovery

We are of the view that the key to tip the scale in your favour is fundamentally twofold: –

1. maintain a paper trail of the processes through which you have fulfilled your client’s request. And by paper trail, we mean to also include electronic trails such as WhatsApp, emails, voice messages and entries on any CRM software;
2. incorporate the following clauses in your master placement agreement to give you an edge in seeking disclosure, negotiation and possibly, litigation: –

• mandatory discovery/disclosure clauses;
• properly drafted confidentiality clauses; and
• deeming clauses.

In our experience, calls for investigation and staging of a confrontation are usually met with either indifference or hostility in the early stages. But if the right kind of attrition is deployed, many clients would eventually yield.

We also understand that not all bridges are meant to be burned. Having the right tools and documents in place also allows you to negotiate with your client from a position of strength, and a well-timed offer of discount to your client may even leave a good rapport unscathed.

 

This article was written by Patrick Peck.

The contents herein do not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such