Ask Jeff: Simple Fee Agreements

Oct 14, 2008

Dear Jeff,

What are your thoughts on using a really simple agreement for clients? One that simply states the parties involved in the transaction, the fee percentage to be paid based on compensation and payment terms if the company hire my referral. The end.

No guaranteed, no what-if scenarios.

Then the new client can make the requests, which I can accept, negotiate, or turn down.

Larry Barlow
Tax Advantage Personnel, Inc.

Dear Larry:

This is a terrific idea! It may surprise our readers to know that many recruiters do exactly that. The fee letter or schedule is accepted – signed and returned by the client without exception. No guarantee, no discounts, no reductions for temporary assignments.

The key is to cover yourself for a specific referral period (one year from the date of last communication with the client regarding the candidate), second-party referrals (from the candidate to others), attorneys’ fees, costs for collection, interest, choice of law (yours), and jurisdiction of courts (your state).

Just be sure there are no patent or latent ambiguities. As a general rule, any ambiguities in a contract are construed against the maker.

California has a typical codification of the common law (common-sense, judge-made law before we had statutes) rule of construction that reads:

In cases of uncertainty . . . the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist.

This is why we sometimes advise clients to sign an otherwise goofy placement service agreement. Let’s say the PSA reads, “You agree to indemnify and hold us harmless from one of our employees injuring your candidate.” A court is unlikely to construe that as reimbursement to the client if some manager punches your candidate in the nose because he works for a competitor.

It’s also why your earlier suggestion to have the client prepare a fee agreement (with the recruiter providing the language) was so valuable. That way, the rule of construction favors construing the agreement in your favor.

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