What to check in a recruitment agency agreement before you sign

The recruitment agency you called about a new role has emailed its standard agreement for you to sign. It looks short, a few pages of familiar-sounding clauses, and the account manager is keen for you to get it back so the search can start. This is the moment to slow down. The parts of that document that decide what you will pay, and when, are usually buried in definitions and fee clauses that read more like a maze.

A recruitment agency agreement is a services contract between your business and the agency. The agency agrees to find candidates and put them forward, and you agree to pay if the arrangement works. It does not make the agency your employer, and the agency does not employ the candidates. When you hire someone the agency has introduced, the employment relationship sits between your business and that person. That is what separates this document from a labour hire arrangement, where the agency employs the workers and supplies them to you, and where the provider needs a licence in Queensland, Victoria or South Australia. This article walks through the clauses that decide whether the agreement works for you.

What the agency is actually engaged to do

The services clause is where the agreement should say, in plain terms, what the agency will deliver. Recruitment agencies offer different levels of involvement. Some run the whole process, advertising the role, screening applicants, interviewing and checking referees, and presenting a shortlist. Others only advertise the position and hand the applicants over for you to shortlist and interview yourself. If the agreement does not say which model applies, you can pay end-to-end prices for a marketing-only service.

The drafting choice that matters most is how specific the deliverables are. A clause that describes the stages the agency will run, the level of experience the candidates must have and the way progress is reported gives you something to hold the agency to. A clause that promises to use "best efforts" or "reasonable endeavours" to find candidates, without describing the work, gives you very little.

Watch for these variants:

Role specification: the agreement should record the position, the skills required and the salary range, because the fee is usually calculated against that salary.
Process steps: confirm whether advertising, screening, interviews and reference checks are included or billed separately.
Deliverables on failure: what the agency owes you if it finds no suitable candidate, such as a refund of disbursements or a right to end the agreement.

Exclusivity: how long, and how wide

An exclusivity clause requires you to use only that agency for the role, and sometimes for every role you fill while the agreement is running. Agencies that specialise in an industry often push for it, on the basis that they are investing in a search that other agencies could free-ride on. Whether that is a fair trade depends on the scope the clause gives you.

The clause works well when it is narrow. Exclusivity limited to one named role, for a defined period, with a fallback if the agency cannot produce a suitable candidate, is a reasonable price for a focused search. It becomes a trap when it stretches further in these ways:

Blanket exclusivity: a promise not to engage any other agency for any position, which can lock you out of better options mid-search.
No exit if the search stalls: exclusivity without a clause that releases you if no suitable candidate is found within a set number of weeks.
Self-recruitment restrictions: terms that stop you hiring candidates through your own networks or direct advertising while the exclusivity runs.
Auto-renewal: exclusivity that silently extends to future roles or renews unless you give notice in writing.

If you agree to exclusivity at all, negotiate a release: no exclusivity if the agency fails to put forward an appropriate candidate within a certain period, and exclusivity confined to the specific job rather than all future positions.

What counts as an introduction

This is the clause the whole agreement turns on. The agency earns its fee by "introducing" a candidate to you, so the contract defines what an introduction is. Read that definition closely, because it lists the situations that trigger an obligation to pay.

A clean definition requires a written introduction: the agency provides the candidate's details in writing, you confirm receipt, and the introduction lapses if you do not hire the candidate within a stated period, often six months. That gives both sides certainty. Many agreements are looser, and the looser they are, the more fee events they create.

Watch for fee triggers that catch candidates you already knew about:

Prior contact: you had already spoken with the candidate, or the candidate had already applied directly, before the agency's introduction. A good clause carves out anyone already in your pipeline, with evidence such as a written record or application date.
Another agency's introduction: the same candidate arrives from two agencies. If the contract does not deal with it, you can owe two fees for one hire.
Group companies: a fee payable if the candidate is hired by any related entity of your business, which can surprise you when a different part of the group makes the hire.
Re-engagement: a candidate you hired and who later left, or who declined, is re-engaged within the defined period, and the agency claims a second fee.

The drafting minimum is a written-introduction requirement, a clear expiry, and a carve-out for candidates already known to you. If the agreement defines "introduce" as anything short of that, negotiate it down before signing.

How the fee is calculated and when it falls due

Recruitment fees are usually calculated as a percentage of the candidate's first-year salary, commonly between 15% and 20%, with senior or hard-to-fill roles at the higher end or beyond. Industry surveys put the typical range around 15% to 22%. The agreement should state the percentage and, just as importantly, what the percentage applies to: base salary only, or base plus superannuation, bonuses and allowances. The difference between those bases can change the fee by thousands of dollars.

The other key question is when the fee becomes payable. In a contingency arrangement, you pay only if you hire the agency's candidate. In a retainer arrangement, you pay a set amount regardless of the outcome, sometimes as a deposit against the final fee. Make sure you know which model the agreement uses, because the two produce very different bills.

Also check for fee triggers beyond hiring the introduced candidate:

Offer accepted but employment not started: some contracts bill on acceptance of the offer, not commencement, so you can owe the fee even if the candidate withdraws before day one.
Re-engagement windows: a fee if the same candidate is engaged again within a defined period, which can mean paying twice for one person.
Third-party referrals: a fee if you introduce the candidate to another business and they hire that person.
Withdrawn offers: whether the fee is refunded or credited if the role is made redundant before the candidate starts.

Disbursements and other pass-through costs

Disbursements are the out-of-pocket costs the agency incurs while running the search, such as fees for advertising on job boards, background checks and psychometric testing. The agreement may pass these on to you on top of the recruitment fee. That is reasonable in principle, but the clause should put a fence around it.

The drafting choice that matters is control. Require the agency to seek your written approval before incurring any disbursement above a modest amount, cap advertising spend, and require itemised invoices with receipts rather than a lump sum. If the agency charges you for a job board listing that is part of its standard service, you are paying for its overheads, not a disbursement. Watch for these common traps:

Mark-ups: disbursements stated as "plus handling fee" or an unexplained percentage on top of the actual cost.
Vague categories: an "administration fee" or "candidate sourcing fee" that is not itemised.
Uncapped advertising: no limit on what the agency can spend marketing the role without asking.

Replacement guarantees and refunds

A replacement guarantee is the agency's promise that if the hired candidate leaves early, it will find a replacement at no additional fee, or refund part or all of the recruitment fee. The guarantee window is usually short, often aligned to the probation period, so check the length in the agreement. If the guarantee is missing entirely, you carry the full risk that a bad hire costs you both the fee and the salary.

The scope of the guarantee matters as much as its length. Most guarantees exclude departures that are not really the agency's fault, and the exclusions list is where the value leaks out:

Voluntary and involuntary redundancy: the candidate is made redundant, or the role is restructured, and the guarantee does not apply.
Substantial change to the role: you change the job description so materially that the candidate leaves, and the agency treats the guarantee as spent.
Misconduct: the candidate is dismissed for misconduct, which many agreements carve out of the guarantee.
Pro-rata refunds: a refund that shrinks month by month, so a departure in the final weeks of the guarantee period returns almost nothing.

Negotiate the guarantee so it applies unless the departure falls within a specific, written exclusion, and confirm whether the replacement search itself is free or attracts a further fee.

Termination and what survives it

Termination clauses in recruitment agreements get less attention than they deserve, because the fee obligations usually survive the end of the agreement. You can terminate the relationship and still owe fees for candidates introduced before termination, and sometimes for candidates introduced shortly before it. Check what happens to an introduction made a week before you give notice, and whether the exclusivity period runs out after termination or locks you in further.

Also look for automatic renewal. Some agreements renew for a further term unless you give written notice within a short window, which is easy to miss when the contract is running smoothly. Diarise the notice date, or negotiate for the agreement to expire at the end of the term unless both parties agree to extend.

The unfair contract terms check

Since 9 November 2023, proposing, using or relying on an unfair contract term in a standard form contract has been prohibited and can attract penalties under the Australian Consumer Law, found in Schedule 2 of the Competition and Consumer Act 2010 (Cth) (the ACL). The prohibition applies to standard form contracts with small businesses, defined for these purposes as businesses that employ fewer than 100 people or had a turnover of less than $10 million in their last income year, as amended by the Treasury Laws Amendment (More Competition, Better Prices) Act 2022.

A recruitment agency's standard agreement is a classic standard form contract: presented on a take-it-or-leave-it basis, prepared before any negotiation, and usually identical for every client. The law presumes such a contract is standard form, and the agency bears the burden of proving otherwise. A term is unfair if it causes a significant imbalance in the parties' rights, is not reasonably necessary to protect the agency's legitimate interests, and would cause detriment to your business if relied on.

Terms in recruitment agreements that are vulnerable include unilateral fee increases without notice, exclusivity that runs indefinitely with no exit, one-sided indemnities, and automatic renewal clauses that bind you without a genuine renewal choice. If you are a small business, it is worth having a lawyer scan the agreement for these patterns, because a term found unfair is void and the agency cannot rely on it.

Optional clauses worth asking for

Depending on how you hire, these clauses are worth raising even if the agency's template lacks them:

Existing-candidate carve-out: a written confirmation that no fee applies to candidates you had already met, who applied directly, or who were introduced by another agency before the introduction date.
Fee rebate on salary variance: if the hired salary differs materially from the estimate the fee was quoted against, the fee adjusts accordingly.
Agency non-solicitation: a promise that the agency will not approach your employees about other roles for a defined period after the search ends.
Candidate data handling: a clear statement of who collects, holds and controls the personal information gathered during the search, and how it is handled under the Privacy Act 1988 (Cth).
Guarantee tied to probation: a replacement guarantee that runs for the full probation period rather than a fixed number of weeks.

How an Artificer Legal lawyer would review your recruitment agreement

An Artificer Legal lawyer reviewing this document would start by mapping every event that triggers a fee, because the fee clause is where the commercial risk concentrates. We would then redline the definition of "introduce" so it requires a written introduction, expires after a defined period, and carves out candidates already in your pipeline. Exclusivity would be narrowed to the specific role with a release if the search stalls, and disbursements would be capped and made subject to prior approval. The replacement guarantee would be checked for exclusions that gut its value, and the whole agreement would be screened against the unfair contract terms rules, particularly if it is the agency's standard form and you are a small business.

The order matters. We would negotiate the introduction definition first, because it decides whether you owe a fee at all. Fees and timing come second, then exclusivity, then the guarantee. If you are signing an agency's template, the negotiation is usually quicker than you expect, because agencies know their standard terms are exposed under the ACL and will often move on the worst of them.

Why the definition of "introduce" decides who pays

Every other clause in a recruitment agreement sets the price. The introduction clause decides whether you owe it at all. It is the most misdrafted provision in these agreements, and the one that produces the disputes: two agencies claiming the same hire, a fee claimed for a candidate who applied directly, a second fee for someone you rehired eighteen months later. If you change nothing else, make sure the agreement says, in writing, what an introduction is, when it lapses, and which candidates it does not cover.

The rest of the agreement deserves a careful read before you sign, not after. Confirm the services the agency will actually perform, keep exclusivity narrow and time-limited, understand how the fee is calculated and when it falls due, cap the disbursements, and check the replacement guarantee for exclusions. Most of these points are negotiable, and the agencies that push back hardest on them are often the ones whose templates rely on the traps in the first place. If the document is the agency's standard form and you are a small business, have a lawyer check it against the unfair contract terms rules before you commit.