Jeff,
I really enjoy reading The Fordyce Letter, and feel that is one of the best sources of information for our industry. As a regular reader of your column, “Jeff’s On Call!,” I would also like to thank you for the valuable insight to the collection issues in our industry. I’m wondering if I can garner a little advice?
This case started in 2009, when one of our former clients decided not to pay us a $20,000 fee. I hired a collection agency that “specializes in the placement industry.” They sold their services as being able to quickly collect, and used stories about how they get deadbeat clients to pay their debt. The fact of the matter is that the defendant who we are suing simply ignored them, didn’t answer the phone, and didn’t return their calls. When I called the agency to push them into more action, I was told that there’s nothing more that can be done and the next step is court.
There are a number of issues that have really bothered me through this process, including:
It’s now nearly three years later. We’ve been through a meaningless mediation (that we had to pay half of), and have a preliminary court date set up for April. I’ve paid a retainer, paid to travel to Florida for the mediation, paid a mediation attorney, and, if I ever do win this case, will end up paying another 1/3 of it to the collection agency and attorney.
Both the collection agency and the attorney representing us seem motivated to get the case closed as fast as possible with as little effort as possible. Honestly, I think the defendant laughed at their weak collection attempts.
OK, Jeff, so now you understand my frustration. Here are my questions for you:
These are unfortunate circumstances that are exacerbated by what I consider to be either incompetent or apathetic resources in support of my collection efforts. Your input would be welcomed.
Thanks, Ed
What Jeff Says
Hi Ed,
I’m so sorry that you’re going through this unnecessary turmoil. You’re a valued member of the Fordyce family and a recruiter role model. Thanks for your willingness to share the matter with our readers worldwide. Your JOC inquiry is imperative to answer, and I’ll respond to your questions along the way.
For once and for all (I hope), here’s my take on what every recruiter needs to know before “turning over” a placement fee receivable to a collection agency. We’re going long on this one, so buckle up:
Collection Agency Doesn’t Represent You
Let’s start with the basic difference between a collection agency customer and an attorney-client relationship. When you “turn over” your collection to an agency, you’re assigning your right to payment. Essentially, you’ve sold the debt to the agency in exchange for a percentage of the recovery. Since the agency isn’t a law firm, it can’t represent you. As the assignee, it “steps into your shoes.” It owns the debt and is simply collecting it directly using its expertise.
This may sound like a distinction without a difference, since a quality agency (perhaps even the one Ed used) will be acting on your behalf anyway. But as a third party who owns the receivable, the agency isn’t accountable to you for its conduct as a professional legal representative (an attorney) is. Legal representation and legal advice (“attorney and counselor at law”) are the two primary licensed functions of a lawyer.
The representation also creates a different perception by a sophisticated commercial debtor. The perception of power gets you paid. Lawyers get involved when clients get serious. Savvy stallers know that now the collection agency has to file a lawsuit before the pressure is on. They also breathe a sigh of relief, since they know only the debt was assigned. Their maximum exposure is just the amount of the placement fee. So when they’re notified that you’ve “turned over” the debt, they relax. Time is on their side, and you’ve already whittled away at your fee.
They just play their stalling game all over again with a new, less involved opponent they know is going to work the larger files that are likely to pay quickly. This is known in the collection agency business as “creaming.” This is no different from working the hot new JO’s and ignoring the others. The longer you ignore them, the colder and older they get. (You’ll soon see why placement fee disputes tend to sink to the bottom of a collection can.)
Don’t Wait To Collect
Maybe that led to Ed’s three-year ordeal. Even assuming there’s a good reason for this, the result is the same. (We’re in the results business.) If you’ve read my writing over the past 35 years, you know that the longer you wait to collect, the less likely you are to collect.
In fact, the ability to collect drops like a depth charge from the time the candidate starts. There are an infinite number of fee forfeiters that arise. A few examples are a candidate colluding with the employer, a candidate embezzling, a candidate going crazy, a candidate getting fired, and a candidate dying. Then there’s actual or feigned dissatisfaction by the employer, witnesses moving, witnesses forgetting, and a business being sold. Start listing the fee forfeiters and you won’t have time to make a placement today.
So we make a “fill it and bill it or kill it” decision in our office in less than three weeks. Much less. We do the legal and factual analysis, consult with the recruiter, give the employer 10 days to pay “or else,” then either (1) get paid or promised with no games, (2) file the lawsuit, or (3) advise the client not to pursue it further. That’s the way accountable lawyers operate.
Collection agencies perform a valuable service. The question is whether it’s the service you need. You decide this by analyzing why you aren’t getting paid. Then you answer the five-figure question:
Do I have a liability issue or a non-payment issue?
Liability (responsibility for payment of a fee) is a legal matter for which you should seek legal advice and perhaps legal representation. That means the employer is denying responsibility for payment of the fee. As you’ll soon see, disputed liability can usually be legally overcome by you or your attorney.
Non-payment (of an undisputed fee) is often not a legal matter. It is a practical matter which commercial collection agencies often handle better than attorneys.
Do This Now
To help you understand the difference (difficult to do when you’re being sandbagged after you’ve made a placement):
I’ll reply with “The Forty Phony Five-Figure Fee Fighters.” You’ll learn the most common liability defenses employers use, and how to legally defeat them.
Then go back to www.placementlaw.com, and click the Placement Fee Collection Quiz button. Take the PFCQ, check your answers, and come back to continue our conversation. (If you don’t do this, you won’t derive the maximum benefit from what follows)
Okay, Welcome Back
The temptation to use a collection agency is great when a recruiter wants to get rid of negative excess baggage, doesn’t want the employer to get away without paying, and doesn’t want to pay an attorney.
Liability issues are ignored because the recruiter decides the employer is either lying or just wrong. Associates, brother-in-lawyers, and anyone else within earshot unequivocally agrees. The dispute polarizes, escalates, and becomes a no-win shoving, shouting match. Brute force seems necessary, and there’s no up-front charge. It’s largely an emotional, reflexive, instant “knock-it-back” feel-good decision.
But those Phony Forty aren’t non-payment issues, they’re liability issues! Phony or not, they must be addressed. Liability (responsibility) must be established (proven) before the non-payment ripens (morphs) into a legally enforceable debt.
When we get a collection case where the employer isn’t disputing liability, we refer the recruiter to a collection agency. That’s because it’s a slow-pay, cash-flow, phone-dodging, asset-hiding, skip-trace, deadbeat kind of thing. In those cases, collection agencies are far better (and cheaper) than lawyers. That’s their bag — pressuring, hounding, attaching assets, grabbing cash.
But is that your sitch? Not likely unless you’re a temp service. Likely that you’re dealing with some employer lawyer on staff or retainer just playing with you. Putting you in the funny papers with the Forty Phonies.
Is it likely a collector will do better? Or will some prankster laugh out loud?
Things Look Different
If you don’t get any of this, just remember: Things look a lot different when you know the law.
Actually, it’s the laws. Fifty states and federal. Cases, statutes, administrative rulings. Many of you may be in an interstate transaction like Ed, so let’s do the math — federal and two states at least. Probably dozens of intersecting, inconsistent laws that apply. More if the candidate or a corporate office is in another state.
The right attorney can blast you into the liability matrix where unlimited liability exists. You whiz past breach of contract with its unacceptable compensatory damages (that merely compensate you by payment of your placement fee) into punitive damages (to punish the employer) and exemplary damages (to make an example of the employer to other fee-avoiders).
Collection agencies don’t do this, and don’t dare even threaten it. They can’t pretend to practice law (although some use law firm-sounding names), and don’t want to be reported to the feds or state investigators. Moreover, they’re only trying to collect on the contract – your fee agreement. That unacceptable compensatory amount of your placement fee (now reduced by the agency’s cut). As we already covered, you only assigned the debt.
You want good-faith allegations (not necessarily absolute proof at this point) of:
FRAUD: The intentional misrepresentation by promising to pay your fee upon which you relied to your detriment. You call it a lie, we call it fraud. Fraud is also a crime — a very bad word indeed. A word that gets you paid.
CONSPIRACY: The agreement with the candidate or anyone else to pull one or more of the Forty Phony. Like fraud, conspiracy is also a crime. Another very bad word that also opens the cash register.
Unlimited Liability
These two intentional torts (non-contractual civil wrongs) invoke unlimited liability in the discretion of the jury. (Your lawyer should always demand a jury trial. It’s very public, and gets employer lawyers very un-arrogant.)
Depending on the contract, the relief requested, and the substantive and procedural law, the recruiter may also be entitled to attorney’s fees, court costs, interest and other expenses. Travel, lodging, meals and other expenses to pursue the litigation would not be awarded, as it might be for a non-party witness.
Aggressive, knowledgeable lawyers understand this stuff. They also understand how jurisdiction (authority of a court) works. In Civil Procedure and Constitutional Law classes, first-year law students learn about state long-arm statutes. They reach “the long arm of the law” (extend the court’s jurisdiction) beyond the resident state’s border. Ed’s business is in Indiana, so let’s see – a-a-a-h, here it is! Indiana Trial Rule 4.4(A). Most states have similar long-arm statutes.
Certainly Florida is an appropriate jurisdiction since the employer is now headquartered there and apparently didn’t object. (Why would it?) But we’d need to know about the employer’s business to decide for sure whether the action can be filed in Indiana. Are there sufficient contacts between the employer and the state? We’d do this in good faith. No contacts, no court.
Where To Sue
In reviewing the facts, it would be helpful to sing It’s A Small World. In Ed’s case, we’d follow up with Back Home In Indiana. There are so many confusing cases on sufficient contacts that you might get laryngitis. But that’s the employer’s problem, since it’s the one making the motion to dismiss (for lack of jurisdiction). Then it’s your problem to oppose the motion. Keep in mind that the state court is financed, the state judge is paid, and the state judge is elected by the state taxpayer-recruiter. Judges do. It’s a small world after all.
Here’s how your lawyer gets the court to maintain jurisdiction:
Let’s say an unlikely motion to dismiss is actually filed (not just threatened) by the nervous out-of-state employer. Your lawyer prepares, files and serves pleadings (court documents) with points and authorities (legal citations of statutes and cases) in opposition to the motion. These are designed to show that the facts demonstrate the employer has sufficient contacts with your state. Almost any communication or business activity qualifies, but be sure of your facts.
Sufficient Contacts
Your lawyer then requests a hearing on the matter so you can present oral argument. At the hearing, your lawyer quietly lets the employer lawyer jive with the judge. When that’s over and the judge asks your lawyer for his rebuttal, he budges the judge by saying:
Thank you, Your Honor. I’ve briefed the relevant cases thoroughly, read opposing counsel’s moving papers, and researched whatever other authority I could find regarding the subject of ‘sufficient contacts.’ The cases are so incongruous that I challenge opposing counsel to show me anyone who knows what “sufficient contacts” are for sure. If he does, I’ll show him someone who lacks sufficient contacts with reality.
So we look for sufficient contacts with sufficient confidence. Why commence litigation where the employer has a cost, convenience, and court advantage? In Ed’s case, why not make the employer fight jurisdiction in Indiana (or default by not entering a court appearance after being after being properly served)?
Will the employer win after paying some new hourly-rate-charging Indiana lawyer to make the motion to dismiss? Do we really care? C’mon. Isn’t that the move? In the aberrant event that the Indiana court dismisses the case, can’t Ed simply then file in Florida? Of course! In fact, that’s what the Indiana judge would courteously recommend if he reluctantly granted the motion.
Like I say, just remember:
Things look a lot different when you know the law.
Fee Collection Guide
Speaking of the law, 30 years ago Search Research Institute published its first edition of The National Placement Law Center Fee Collection Guide (with Case Citations)*. It’s an indispensable reference guide that contains the intentional tort theories (like fraud and conspiracy) that get you paid. Serious recruiters and their lawyers buy it consistently.
But in 30 years, not a single collection agency has ever bought that little gem (then $95 with free shipping). Now that you understand their business, you understand why. The laws they care about are the federal Fair Debt Collection Practices Act (15 USC 1692, et seq.), the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub L 111-203, et seq.), and strict state debt collection laws enforced by stricter government agencies. The Fee Collection Guide doesn’t address their legal business problems — it addresses yours.
When collection agencies fail, the matter has polarized significantly. So as a last resort, they often turn the matter over to some network volume collection lawyer (for an un-motivating cut of the cut). We’ve already discussed how the delay alone dramatically reduces the probability of getting paid.
You Could Be Sued
The filing of a lawsuit by then may make matters even worse. Often the recruiter has to pay some new hourly-rate-charging defense lawyer to fight a counterclaim from the employer (or even the cooperative candidate). “How can this be? I did nothing wrong! Why didn’t anyone tell me this could happen? W-h-a-t? I have to pay for legal defense?” (Ed was lucky that didn’t happen, too.)
Surely you understand that anyone can sue anyone for anything. As long as the employer lawyer is defending the fee, why not? It’s just another word-processed pleading on the program. That “psychological counterclaim” predictably turns you into one petrified placer hyperventilating to settle for “mutual dismissals.”
Sometimes recruiters ask the defense lawyer to “take the case on a contingency-fee basis.” Only someone still in a state of shock would ask this. Defense litigating is hourly-rate, on-the-clock, billable time. Why? There’s no “contingency” on defense except losing!
The matter of executing on the judgment is premature to discuss, so I’m not sure why Ed’s collection agency and attorney are raising it now. Have they done asset checks of the employer? If so, has he seen them?
Ed’s is not exactly a case of first impression. It just makes me want to break out with my rendition of Welcome To My World.
Courts have been dealing with fee-avoiders ever since Fred tried to fool Barney. Much later in medieval times, the king sent them to “debtor’s prison,” or simply beheaded them.
Writ of Attachment
These days, our courts use a procedural device known as a writ of attachment (different names, same drill) to seize “wasting assets.” This allows an unpaid recruiter to have the employer’s bank account tapped, and the deniro (as in the exclamation “Mucho dinero!”) either held by the bank or the court. The basis is that there is an imminent danger of those “wasting assets” being depleted (withdrawn) before the court has a chance to rule on the case.
First-year law students learn about the pre-judgment WOA in their civil procedure class.
Does it get the employer’s attention? Answer: “Do you bill a placement?” The application for a WOA alone often shakes the employer up enough to pay in exchange for dismissal of the case.
If an employer pays a lawyer to defend a lawsuit (here, even with the added expense of mediation), it’s a safe bet that: 1) it’s paying for defense; 2) it’s still in business; 3) it’s paying its employees; and, 4) it has assets worth protecting. It doesn’t take a C.P.C. to figure that out.
My Professional Attachment
I got dragged into placement fee collections kicking and screaming. I hated them in 1975 when I started collecting only for regular, fee-paying clients. Since I’d been stiffed on placement fees myself, I was “professionally attached” (not detached as I was taught to be in law school). Since I was also an HR manager for almost a decade, I learned the fee-avoidance techniques they used so well.
That professional attachment coupled with that knowledge caused our fee collection ratio to go right through our Beverly Hills roof. It seems every recruiter everywhere wanted us to collect for them. I still hate fee collections, but I suppose that’s why we’ve been so successful with them.
A recruiter called me recently about a $45,000 fee he turned over to a collection agency. The collector was pressuring him to accept $5,000 as “nuisance value” based on the employer’s bravado using two of the Forty Phony. It looked like a full-fee contract claim, and the two Forty Phonies made it a fraud and conspiracy claim as well.
As usual when I get these calls, the agency had done no factual analysis (they don’t), no legal analysis (they can’t), the dispute had polarized, the employer was digging its heels in, the file was so old that a lawsuit had to be filed before the statute of limitations would foreclose it, and litigation in the employer’s state was the only option presented by the agency.
I called the agency owner and asked him why his collector thought $5,000 was a fair settlement. His reply said it all: “What business do you think I’m in? I’m in the collection business!”
An honest answer — but the wrong one for you.
. . . and that’s my take about turning your fee dispute over to a collection agency.
Ed, Thanks for helping so many by getting me professionally attached. I really hope this is helpful for you going forward — and Fordyce friends worldwide as well.
Best wishes for success in finally collecting this well-earned fee!
Jeff
*The National Placement Law Center Fee Collection Guide (with Case Citations) can be ordered online for $125 at www.SearchResearchInstitute.com.
