Are You Your Client’s Contractor Or An Agent?

Article main image
Jun 16, 2014

In columns through the years, we’ve discussed the different ways any employee can bind his or her employer to pay a placement fee. For this reason, the “unauthorized hiring authority” defense is particularly weak, since an employee is an agent, and therefore acts on behalf of the employer.

Now, we are representing recruiters in a growing number of cases where it’s alleged they were also acting as agents of clients. The significance of this in imputing (attaching) liability to the client for your alleged misrepresentations to candidates and interference with the businesses of source employers, is just beginning to emerge.

Invariably, you’ll end up in crossfire between the candidate or source, and your former client. Friendliness with the client is unlikely when imputation means it will be liable. The relationship is more like one where you have a known case of leprosy. Since almost every recruiting call you make involves representations to someone else’s employees, the opportunity to increase litigation is simply wonderful.

I hope this PTL slams the door for you when the opportunity knocks.

How It Works

An agent is someone authorized to represent another (the principal) in dealing with third parties. A hiring authority is an employee authorized to hire. In fact, all employees authorized to use the phone are authorized to deal with third parties.

However, you’re not an employee. You’re an independent contractor. This is because you agree to perform a completed task (placement of a suitable candidate) at an agreed price. The way you do it is none of the client’s business. Or is it?

We know better. You ask the client for leads to candidates and sources. You discuss recruiting approaches. You cold call into specific competitors. You represent things about the client. You send candidates client information. You arrange interviews. They may be held by the client in your office. You may check references. You may even extend offers.

No. You don’t sound like a building contractor at all. Why? Because you are someone authorized to represent another in dealing with third parties. Sound familiar? It should — that’s the definition of an agent. No retainer is required.

Three Ways to Get In Trouble

There are three ways the courts find your authority to act, and use it to impute liability to the client.

1. Express Authority :  This occurs simply by taking a job order over the phone. As you might recall from other PTL’s, the contingency fee job order is an offer. In his highly respected Handbook of the Law of Agency, Warren Seavey notes:

[I]n the making of an offer, authority is created by a unilateral act and continues to exist as long as one upon whom it is conferred has reason to believe the other desires him to act

. . . [A]ny conduct of the principal [client] communicated directly or indirectly to the agent [recruiter] is sufficient.

Of course, the client will deny that you were authorized to call a competitor, source a candidate, present an opportunity, obtain the candidate’s resume, and inadvertently send the resume to the candidate’s present boss. Clients always deny things like that.

Since requests for industrial espionage usually don’t appear on the JO, the chances of a jilted candidate prevailing against the client based on express authority are limited.

But this isn’t the only theory.

2. Implied Authority:  The recruiter also has the unstated authority to carry out the acts necessary for the placement. Search techniques are well-known to clients. In fact, one of the major advantages to using recruiters is that they can implement them more readily and extensively.

Clients don’t really want to hear about your sourcing techniques, and you really don’t want to tell them what they are. But they’re authorized alright. Five-figure fees aren’t paid for checking with the unemployment office. And they aren’t paid for effort. They’re paid for results. Hiring authorities may look the other way, but they do so at their own risk.

Implied authority in recruiting often also occurs by ratification. Let’s assume you have presented eight candidates working for a competitor. The client interviewed two. Even though the client may not have consented to you calling the competitor (express authority), or known that you were calling the competitor before you did so (implied authority), the acceptance of the referral relates back to authorize the acts (ratification). In fact, this could even occur if the client told you not to raid the competitor:

As Professor Seavey notes:

Irrespective of what an agent has been told to do … the failure of the principal [client] with knowledge of the conduct to object to its continuance constitutes a manifestation to the agent [recruiter] that he is authorized.

Now, for the most interesting development.

3. Apparent Authority:  This is the agency relationship that results by the client leading the candidate to reasonably believe the recruiter has the authority to act on its behalf. By this conduct, the client is estopped (prevented) from denying that the authority existed.

A good example is when relocation is arranged by the recruiter because the client doesn’t want to bother with the details. The candidate obtains the consent of the recruiter for two additional scouting trips to look for a house, but the client doesn’t know about it and refuses to pay.

By allowing the recruiter to communicate with the candidate regarding relocation, the client can’t pick and choose which items it authorized. The candidate reasonably believed the company would reimburse the expenses cleared in advance with the recruiter. He was right, as it turned out in an actual case we defended.

Of course, the client could have cross-complained against the recruiter for acting outside the scope of his authority. It didn’t though, because we pointed out that the client waived its rights by failing to monitor the relocation arrangements.

As the invasion of privacy, misrepresentation, trade secrets, unfair competition and conspiracy laws continue to expand, the agency relationship between the client and recruiter will continue to be riveted.

We’ll keep you updated on the developments.


Get articles like this
in your inbox
Subscribe to our mailing list and get interesting articles about talent acquisition emailed weekly!