Key Points to Consider When Creating a Basic Recruitment Services Agreement

When companies seek to hire employees, they have the option to not only advertise job openings themselves but also receive candidate introductions from recruitment agencies. By engaging such agencies, companies can have their specific requirements thoroughly understood, enabling them to find candidates who best fit their needs. Due to these advantages, many companies have considered utilizing recruitment services.

However, it’s essential to be aware that the “Basic Recruitment Agreement,” which is entered into with the recruitment agency when using their services, contains clauses specific to recruitment that require attention. Therefore, this article will provide an explanation of the key points to consider when creating a Basic Recruitment Agreement.

What is Recruitment Service Business?

Generally, companies that need personnel and choose to advertise job openings themselves may encounter the following disadvantages:

1. Receiving applications from candidates who do not meet the company’s desired criteria.
2. Difficulty in handling a large influx of applications.
3. Inability to keep the recruitment process discreet.
4. Inability to appeal to candidates who are not actively seeking a job change.

Recruitment Business (Recruitment Services) is a service that overcomes the aforementioned disadvantages by introducing candidates to companies with personnel needs. Recruitment agencies typically start by conducting detailed interviews with companies to understand their desired talents, and then proceed to introduce suitable candidates who are considering job or career changes.

Moreover, recruitment agencies can be categorized into the following three types, depending on the methods they employ for recruitment:

①Registration Type

The registration type, also known as the general type, is the most common category among recruitment agencies. In this method, candidates registered with the agency are introduced to companies as potential hires. One advantage for companies is that there are no initial costs involved. However, there might be limitations in accommodating candidates with specialized knowledge or unique skills.

②Search Type

The search type, also referred to as headhunting type, involves not only using the agency’s database of registered candidates but also employing various means, such as social networking sites (SNS) and personal connections, to find candidates who match the company’s desired criteria. While this method allows for locating candidates who meet strict or specific conditions, it often comes with higher success fees compared to the registration type, and there might be initial costs like engagement fees.

③Reemployment Support Type

The reemployment support type, also known as outplacement type, involves introducing employees of a company undergoing restructuring, downsizing, or layoffs to other companies. In this case, the company seeking to downsize covers the expenses, allowing the receiving company to hire at a lower cost. However, there may be limitations in terms of the number and types of available candidates.

As described, each type of recruitment has its own advantages and disadvantages. In general, the benefits of utilizing recruitment services include the following:

Introduction of Candidates Matching Specific Company Requirements in Recruitment

When using recruitment services, the agency thoroughly understands the company’s requirements in detail.
For instance, the company may prefer candidates with a low job change history or those holding particular certifications or experience in a specific field.
Such detailed requirements may be challenging to include in a job advertisement accessible to the general public, but with the assistance of a recruitment agency, these specific criteria can be addressed effectively.
Moreover, the company’s specific requirements are typically disclosed only to potential candidates, eliminating concerns about unrelated third parties viewing the job conditions.

No Overwhelming Influx of Applications

By utilizing recruitment services, companies receive introductions only for candidates who meet their specific criteria. This eliminates the common issue of receiving an overwhelming number of applications when advertising job openings.
Additionally, when it comes to rejecting candidates, the recruitment agency handles the matter tactfully on behalf of the company, reducing the burden for the company’s HR personnel.

Ability to Keep the Job Opening Confidential

When the purpose of using recruitment services is to recruit for a new project or a sensitive position, companies may prefer to keep the job opening confidential.
Especially when a project significantly impacts the company’s fate, publicly advertising the job opening could potentially harm the company’s interests if rival companies or competitors become aware of it.

Appealing to Candidates Not Actively Seeking a Job Change

One significant difference between using the company’s own job advertisements and recruitment services is the ability to approach individual candidates through the recruitment agency’s representatives.
Among the candidates registered with the recruitment agency, there might be individuals who are currently satisfied with their current employment but have registered with the agency for informational purposes.

Such candidates may be highly skilled individuals who are well-regarded in their current positions, making them less likely to respond to regular job advertisements.
By using recruitment services, companies can make a targeted approach, reaching out to these exceptional candidates discreetly.
This capability to reach out to candidates not actively in the job market is a significant advantage of using recruitment services.

Differences Between Recruitment services and Staff Dispatch services

When companies are searching for suitable workers, they also have the option of using staff dispatch services. In recruitment, the recruitment agency acts purely as an intermediary, and the actual employment contract is established between the company and the candidate. In contrast, in staff dispatch, the employment contract is between the staff dispatch company and the worker.

Therefore, recruitment and staff dispatch differ significantly in their legal frameworks and mechanisms.

Checkpoints for the Basic Recruitment Agreement

When using recruitment services, it is common to enter into a Basic Recruitment Agreement. This agreement includes specific clauses that are unique to recruitment, which require careful attention. Below, we introduce some specific examples of clauses that should be checked in the Basic Recruitment Agreement.

Additionally, it is important to note that providing recruitment services typically requires obtaining a license for paid job placement services. Therefore, it is crucial to confirm whether the recruitment agency has obtained the necessary license before engaging their services.

Point 1: Scope of Commissioned Recruitment Services

Article X (Scope of Commissioned Services) Party A hereby commissions Party B to perform the task of introducing candidates who meet the specific recruitment conditions designated by Party A (hereinafter referred to as the “Services”), and Party B accepts the commission.

Note: In this context, “Party A” refers to the company recruiting personnel, and “Party B” refers to the recruitment agency (both terms are used interchangeably below).

The Basic Recruitment Agreement is a contract where a company recruiting personnel entrusts the task of recruitment to a recruitment agency. Therefore, it is necessary to specify the scope of the commissioned services in the contract. However, since the Basic Recruitment Agreement is essentially a “basic agreement,” the content regarding the commissioned services is usually stated in abstract terms, as shown in the example clause. Specific details, such as the type of personnel desired, will be specified by the company to the recruitment agency on a case-by-case basis. The phrase “designated by Party A” in the example clause refers to this individual and specific specification.”

Point 2: Compensation for Recruitment Services

It is also essential to include the compensation for the recruitment services (remuneration for the recruitment tasks) in the Basic Recruitment Agreement.

Article X (Compensation)

1. In the event that Party A enters into an employment contract with a candidate introduced by Party B, and said candidate commences employment with Party A, Party A shall pay Party B the remuneration for the Services.
2. The remuneration specified in the preceding paragraph shall be X% of the theoretical annual income of the candidate introduced by Party B (excluding consumption tax).
3. The theoretical annual income referred to in the preceding paragraph shall be an amount equivalent to twelve months’ worth of the monthly salary (including the base salary, bonuses, various allowances, and fixed overtime pay) that the candidate introduced by Party B is expected to receive during the year of hiring.

Regarding the clauses related to remuneration for commissioned services, two points are crucial:

• Conditions for remuneration to be triggered.
• Method of calculating the remuneration.

The standard remuneration for recruitment services is generally “30-35% of the agreed theoretical annual income between the recruiting company and the hired candidate.” For specialized or executive positions, this percentage can be set higher at “40% of the theoretical annual income.”

Further details on calculating the theoretical annual income will be explained in the section “Method of Calculating the Remuneration.”

Conditions for Triggering Remuneration

Since recruitment agencies often work on a success-based commission system, there is typically no initial fee charged to the recruiting company.

The conditions for triggering the remuneration are stipulated in the first paragraph of the example clause. In this example, the remuneration is triggered not only by the signing of an employment contract with the candidate but also by the candidate actually starting to work for Party A.

This provision takes into account the possibility that, during the period between signing the employment contract and commencing work, a candidate might decide not to proceed with the job change due to strong persuasion from their current employer or other factors.

By not requiring remuneration to be paid immediately upon signing the employment contract, the agreement protects the recruiting company from potential financial loss if unforeseen circumstances lead to a candidate not joining the company after the contract is signed.

Method of Calculating Remuneration

The method of calculating remuneration is specified in the second and third paragraphs of the example clause. In contracts related to recruitment, the concept of “theoretical annual income” is commonly used for calculating remuneration. The theoretical annual income refers to the expected annual income of the candidate if they were to stay employed by the recruiting company from the beginning to the end of the fiscal year.

The theoretical annual income typically includes the base salary, various allowances, and bonuses. As for overtime pay, some companies include the average overtime pay, while others include it only for specific cases, such as fixed overtime pay. It is essential to clarify and confirm this beforehand.

The set annual income is based on the first year of employment, and for positions with fluctuating wages, such as those with varying amounts based on night shifts or overtime allowances, the average annual income for that company is used for calculation.

For example, if the monthly salary is 300,000 yen with a 2-month bonus, the theoretical annual income would be calculated as follows: Monthly salary (300,000 yen) × 14 months = Annual income of 4,200,000 yen. However, the actual annual income may vary based on factors such as the evaluation period for bonuses and the employment duration requirements, which differ from company to company.

It is crucial to remember that the theoretical annual income is not legally defined; therefore, when using it as the basis for remuneration calculation, as shown in the third paragraph of the example clause, the specific method for calculating the theoretical annual income must be explicitly stated in the agreement.

Additionally, some recruitment agencies may charge fees for optional services beyond recruitment. Regardless, since remuneration for recruitment is often substantial, it is vital to consider the company’s financial situation and evaluate whether the proposed remuneration and fees are feasible before proceeding.

Point 3: Refund of Remuneration in the Event of Resignation Within a Specified Period

Article X (Refund of Remuneration)
In the event that a candidate introduced by Party B enters employment with Party A but resigns within a specified period due to reasons not attributable to Party A, Party B shall refund a portion of the remuneration already received from Party A according to the following provisions:

1. In the case of resignation within one month after entering employment, Party B shall refund 70% of the remuneration received.
2. In the case of resignation after one month but within three months after entering employment, Party B shall refund 30% of the remuneration received.

The Basic Recruitment Agreement often includes a clause stipulating that if a candidate introduced through the recruitment resigns within a specified period after entering employment, a portion of the remuneration will be refunded.
Since remuneration for recruitment is usually substantial, if a candidate leaves the company before being able to contribute effectively, the recruiting company may suffer significant financial loss despite having paid the remuneration.

Thus, including a clause regarding the refund of remuneration in the event of resignation within a specific period is essential for the recruiting company.

The specific period and the percentage of remuneration to be refunded may vary depending on the recruitment agency, so it is crucial to thoroughly confirm and clarify these details.

Point 4: Prohibition of Direct Transactions

Article X (Prohibition of Direct Transactions)

1. Party A shall not make direct contact with the candidate introduced by Party B without obtaining prior consent from Party B. However, this provision shall not apply if one year has passed since Party B introduced the candidate to Party A.
2. In the event that Party A violates the provisions of the preceding paragraph and directly engages with the candidate, Party B shall have the right to claim a penalty of 10% of the remuneration that Party B was entitled to receive in addition to the remuneration that Party B should have received had the candidate been employed by Party A.

In the business of recruitment, the main goal is to match candidates with companies seeking employees. From the perspective of the recruitment agency, direct transactions between the candidate they introduced and the company could jeopardize the core of their business by preventing them from receiving the agreed-upon remuneration.
To avoid such situations, recruitment agreements typically include provisions that restrict direct communication between the company and the candidate until after an employment contract is signed. As shown in the example clause, these provisions may require “prior consent” from the recruitment agency.

To enforce the prohibition of direct transactions effectively, it is common to include penalties, such as those stated in the second paragraph of the example clause. If the penalty only requires Party A to pay the remuneration that Party B should have received, it might not be a strong deterrent for the company seeking personnel, as they may consider paying the remuneration sufficient if the direct transaction is discovered.

Therefore, it is customary to include a penalty, such as the one in the example clause, where Party B can claim a breach of contract penalty in addition to the remuneration equivalent to what they should have received.

Summary: Seek Legal Review of Recruitment Agency Contracts from a Lawyer

When utilized effectively, recruitment agency services can help companies efficiently recruit talented individuals. Acquiring the right personnel is crucial for a company’s growth, making recruitment agency services increasingly popular.

To avoid potential disputes, both providers and recipients of recruitment agency services should seek legal review of the contracts beforehand. Seeking advice from a lawyer specializing in corporate law regarding the content and negotiation of the contracts is highly recommended.

Services Offered by Our Law Firm for Contract Drafting and Review

At Monolith Law Office, we specialize in IT, internet, and business law. We provide services such as contract drafting and review for various types of agreements, not limited to recruitment agency basic contracts, to our corporate clients and customers.