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Employment Agency Contracts

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It's not strictly employment law, but a lot of employment lawyers will find this case useful. It's good news for those who advise employment agencies...

The Court of Appeal has allowed an employment agency's second-tier appeal in Euro London Appointments Ltd v Claessens International Ltd. The case is authority for the proposition that a clause making partial refunds against an employment agency's fees, in respect of permanent staff whose employment ends within 12 weeks of commencement, conditional on the client discharging the agency's fees within seven days is not an unlawful penalty (and therefore void).

The agency brought a summary judgment application for unpaid fees, in respect of two workers who had left their employment within a few weeks. The client admitted liability for part of the fees, but relied on a contractual term stating that it could have an 80% and 40% refund respectively, as the employees had been left employment within a few weeks of starting.

The agency responded by relying on another term, providing that the refund was only available if its fees were paid within seven days (which they had not been). The client responded, in turn, that the term was a penalty and should not be enforced. The District Judge and the Circuit Judge both accepted that the clause was a disguised penalty. The Court of Appeal reversed these decisions, and held that the clause making the refund conditional on payment within seven days was not a penalty.

The decision is complicated. The essence of the Court's reasoning (Chadwick LJ giving the leading judgment) is that the clause was simply a condition precedent to exercising the right to a refund, and was not a measure of damages (whether grossly disproportionate or not) for breach of contract.

Euro London Appointments Ltd v Claessens International Ltd