ERADICATING THE MOST POPULAR FEE COLLECTION DEFENSES
By Jeffrey G. Allen, J.D., CPC
Placement fee avoidance has reached epidemic proportions, and no two fact patterns are the same. Since the subject is so critical and so complicated, here are the most popular defenses and the ways to eliminate them:
1. THE “UNAUTHORIZED” HIRING AUTHORITY
The title sounds illogical, because the defense is. This occurs when someone employed by a client places a job order, and after the candidate starts the client denies that the authority existed.
Since the employer is in the best position to supervise the activities and duties of its employees, the courts are not sympathetic to its management problems. Public policy strongly favors upholding contracts, and therefore the law of agency (one person acting for another) has developed a concept known as apparent or ostensible authority. Simply stated, this means that actual authority is not necessary. The burden of proof upon you consists of introducing evidence that the employee appeared to be authorized, and that you relied upon his or her ability to bind the client. The client is then estopped (stopped or prevented from asserting this defense.
Apparent authority extends beyond the job order to confirming the fee, mailing the fee schedule and arranging for a sendout. It’s a common defense, but the answer is always the same: If they agreed, they were authorized!
Nice to know.
2. THE “UNDETERMINED” TERMS OF THE CONTRACT
Almost all fee schedules contain a variable fee in the form of a percentage of projected starting monthly or annual compensation. Since the percentage varies, and the compensation is unascertained until the candidate actually is hired, this defense alleges that the terms were not definite and certain when the “contract” was executed.
This is another illogical defense, because while the exact amount of the consideration isn’t ascertained, it can be with reference to the fee schedule and starting compensation.
Further, latent ambiguities often exist in fee schedules, which are not discovered until the employer’s lawyer reviews them after the placement. Since courts are inclined to enforce contracts, they will consider evidence of custom and usage in the industry as well as similar transactions regarding placement fees to interpret the intent of the parties. Therefore, even if it is a new employer, you may be able to recover. A properly prepared fee schedule will avoid almost any latent ambiguity defense.
3. THE “PLACEMENT IN THE BASEMENT”
This is the situation where you send an “open” resume with contact information on the candidate. They know they shouldn’t, but it’s just too much to resist! Besides, the procurement budget is about exhausted anyway: “Five-figure fees for sending resumes?” They think.
Your proof is difficult because, without at least a sendout record, you will be left to a job order and, perhaps, a cover letter. The prognosis is client hardening of the attitudes and candidate amnesia.
The typical reaction is repeated telephone calls to the client and candidate, and the discussion usually is long, repetitious and very, very depressing. Eventually, you’ll roll out the “honor,” “fairness,” and “good faith” artillery, but check often to see if they’re still listening. Sooner or later, you will grow tired of leaving messages.
There’s a painful cure, but not as painful as losing your five-figure fees: Find the file copy of the resume and tape it to the wall in a conspicuous place, like merchants do when a check bounces. Tape a copy of your invoice next to it and post a sign that reads:
“THIS IS WHY WE DON’T SEND CONTACT INFORMATION.”
Leave it there so you and other recruiters will be reminded constantly.
Although 20% of all resumes are “open,” 50% of all fee disputes surround them. If you arrange the sendouts, you’ll receive the fee.
4. THE “COINCIDENCE CONSPIRACY”
When you work a desk, this seems to occur a lot. When you are a human resource manager, it never does. It is the — you guessed it – “dual referral.” There are other names for it as well — names like breach of contract; inducing breach of contract; interference with contractual relations, fraud, conversion, and conspiracy.
The major problem with this “set up” is proving your case. The employer and the other source are not exactly strangers, and the “candidate” can be expected to support the “party line.” As we noted in other articles:
If everybody cooperates, you can expect the sendout information, calendar entries, correspondence, fee schedule, date stamp, source of referral on the application or Email, invoice, and other documentary evidence to be suitable for framing. Yours will be useless except to comply with record retention laws.
Of all the fee avoidance techniques in the client’s bag of tricks, this one is the most vicious. Unfortunately, lawyers live in a world of proof, and the truth alone is not always enough.
5. THE “PICK UP” CANDIDATE
This situation rises from the “cold calls” presenting candidates, or the mass mailing or Emailing of resumes. In either case, the client doesn’t initially give a job order, but only reviews the qualifications of candidates.
While there is a significant amount of legal theory surrounding the offer-acceptance-consideration trilogy necessary for the formation of any contract, the fact that the initiation of the process started with you doesn’t affect your legal rights. However, this practice does not make you look particularly professional. You should adopt a policy of always writing a confirming correspondence referencing the enclosed (or attached) fee schedule, immediately upon ascertaining that the employer is interested. This will effectively neutralize the defense that you misrepresented either the candidate or the amount of the fee.
After all, even pick ups get married!
6. THE “SLOW HAND” SHAKE
This is the typical delayed hire, where the employer was not serious at the beginning, the employer closed the requisition, or someone else was hired. A very common problem.
Until they are fully aware of how your business operates, judges tend to believe that the passage of time alone somehow elevates the rights of the employer. Of course, as a practical matter, it is a very short step to your candidate stating that they initiated the contact with it. This short step is worth your placement fee, so it often occurs. Regardless of whether you actually arranged an interview the first time, whether the position is different from the original one, or whether you were “authorized” to refer candidates, that fee is yours!
If your fee schedule doesn’t include a time limitation, go for it!
These were the most popular fee collection defenses. Now you can eliminate them.
Jeffrey G. Allen, J.D., C.P.C. turned a decade of recruiting and human resources management into the legal specialty of placement law. For over 32 years, Jeff has collected more placement fees, litigated more trade secrets cases, and assisted more search and placement practitioners than anyone else. From individuals to multinational corporations in every phase of staffing, his name is synonymous with competent legal representation. Jeff holds four certifications in placement and is the author of many bestselling books in the career field. Jeff may be reached at: Law Offices of Jeffrey G. Allen, 10401 Venice Blvd., Suite 106, Los Angeles, CA 90034 – (310) 559-6000 – jeff@placementlaw.com.
EDITOR’S NOTE: Jeff will be a featured speaker at the Fordyce Forum 2008. If you plan to attend and have any specific question you would like for Jeff to answer during his presentation, send them to: Jeff@placementlaw.com.