Recouping your losses when a new employee leaves

HR Magazine, May, 1999 by Andrea C. Poe

Solid partnerships with recruitment agencies are important when negotiating the recovery of recruiter costs.

It's an HR professional's nightmare. The dynamic new employee with the golden future calls it quits after a few short months. To make matters worse, the untimely exit comes just after the period guaranteed by the recruitment agency that placed the employee.

According to industry standards, an agency's contractual responsibility usually ends at 90 days. But what happens when an employee leaves a short while after that, say in 100 days? Does HR have any recourse?

"Generally, it depends on the terms a company has discussed with a recruitment agency. Employers are wise to carefully review contracts to be sure there's some flexibility," says Michael Karpeles, head of the Employment Law Group and partner at Chicago-based Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz Ltd. "However, even if it's not in the contract, typically the agency will want to maintain a good relationship and will work out something."

In fact, there are several options open to HR professionals when negotiating the recovery of recruiter costs after an employee bolts. But the options have to be explored before that happens. That's because responsibility can fall to anybody - the employer, the agency and, in some cases, even the departing employee. Just how such circumstances are handled depends on the relationships among them, says Chris Grover, director of business development at SYNAPSE Inc., a technical staffing and consulting firm in Vienna, Va. "It can become difficult with three parties involved, but if everyone is fair, they'll find a solution."

Longer Guarantee Periods

Negotiating a longer guarantee period with the agency up front is one way to minimize the risk and costs associated with an employee who leaves prematurely. Though the standard is three months, Orcom Systems, a Bend, Ore., developer of software and provider of consulting services to the utility industry, negotiates a four-month guarantee period with all its outside recruiters.

"The extra month makes us more confident in assessing an employee's skills," explains Kristin Klecker, human resource manager at Orcom.

McHugh Software International, a Waukesha, Wis.-based company that automates warehouse and distribution centers, also has been successful in lengthening guarantee periods with certain agencies. However, Candace Enos, director of human resources, cautions, "It's a matter of give and take," noting that, in exchange for better rates and longer guarantees, agencies will expect assurances of volume and exclusivity.

The fact that both Orcom and McHugh are in the information technology field may account for their ability to negotiate extended agency guarantees. Klecker notes that agencies recognize that, "The learning curve in the high-tech field is longer, so you need time to tell if an employee is going to work out."

Prorated Agreements

Sliding scale reimbursement schedules are an effective way to eliminate bickering about who pays what when an employee departs early. Prorated agreements tie specific guarantee periods to concrete reimbursement rates. For example, a typical prorated arrangement calls for "100 percent reimbursement to the company if the employee leaves within 30 days, 75 percent between 31 and 60 days, 50 percent between 61 and 90 days, and 25 percent between 91 and 120 days."

Prorated contracts give HR professionals a cushion of comfort. In addition, these agreements can be used as leverage to negotiate longer guarantee periods because the agency's financial risk diminishes as time goes on.

The Arbitron Co., a media information services firm in Columbia, Md., arranges prorated schedules with some of its recruitment agencies. "We negotiate different terms with different agencies ranging from 90-day all the way up to six-month guarantees," explains Tony Gochal, organizational effectiveness consultant at the company.

The upside of the prorated arrangement is that HR managers can be sure that the agency shares their main objective, namely, to find and to retain an employee with staying power. "It's like a warranty on a car," says Gochal. "If an agency is willing to give you a long [or prorated] guarantee, you're going to have some confidence that they have done their homework and have found employees who are going to stay."

However, Gochal notes, while such contracts are good if you can get them, finding agencies that will make prorated guarantees isn't always easy.

Employee Replacement

There are times when a replacement, not a refund, is what the employer needs. "It depends upon the situation, but if you really need someone in the position, you'd rather get a replacement from the agency," than a reimbursement, Enos says.

While some agencies with longstanding relationships with a company may find a replacement at no cost to the company after the guarantee period, such an arrangement should not be expected. More commonly, agencies will work at a reduced rate to refill the spot. "You try to negotiate the best you can," Enos notes.