Hi Jeff
I enjoy reading your posts and replies on The Fordyce Letter. All of us in the recruiting industry appreciate your insight and thoughts along with a forum to discuss here on The Fordyce Letter.
Here is our firm’s dilemma:
A long-time client that we have been working with to help build their growing organization asked us to find a HR talent acquisition recruiter.
I have a duly signed and executed search agreement signed by the director of Human Resources. We identified, screened, presented several candidates for the position. A strong candidate was identified and pre-screened for the role by us. We presented the candidate, and were asked to set up an interview with the HR director. The candidate interviewed and received/accepted a written offer, which I negotiated. The candidate passed reference, background, drug tests and started the position. Unfortunately the candidate resigned after two days due to a family situation. Below is an excerpt of our search agreement paragraph 2:
Our service fee is equal to 20% of the candidate’s guaranteed first year compensation. The service fee is payable if a candidate enters into a service relationship with Client within twelve months after our most recent communication relating to the candidate. If the service relationship between Client and the candidate is terminated for any reason except for a change in job duties or location, within 30 calendar days after the candidate starts, we will replace the candidate with a candidate possessing comparable material qualifications. We will complete this additional search, provided that the invoice was paid within terms, and client notifies us of all facts relating to the termination of the relationship in writing and within 5 business days after the candidate’s termination.
- We have offered to replace the falloff with no response;
- The client never advised us of the departure in writing within the 5 business days;
- The invoice is not within terms.
I would appreciate your thoughts.
Thank you
John
Jeff Responds
Hi John,
I’m delighted to be helping a Fordyce family member. It’s like we’ve grown up together. In fact, we have!
Since you’ve completed the experience requirements for the Placement Law 303 course, I’m going to use your feefight as our case study for today’s class. The subject is Fee Schedules, and the section is “Reverse Unilateral Contracts.” This class will cover instant falloffs.
Recruiters worldwide can audit the session.
To get the admission slip, just:
- Go to www.placementlaw.com,
- Click the Placement Fee Collection Quiz button in the middle of the bottom row.
- Take the PFCQ.
- Click the Placement Law Language Quiz button next on the bottom row.
- Take the PLLQ.
- Click the Answers to Placement Law Quizzes at the end of the bottom row.
- Grade yourself on the PFCQ and PLLQ.
- Return to this screen.
Welcome to Placement Law 303! The text we’ll be using is Contract as Promise by Harvard law Professor Charles Fried (order at Amazon http://amzn.to/191UOCG).
Have a seat and take good notes.
Defining Terms
Before we begin, let’s define our terms:
At-will employment: The typical employer-employee contractual arrangement whereby either party can terminate (end) the relationship at any time without any liability (responsibility) to the other.
Falloff: This occurs when a placed candidate leaves the employer at any time (for any reason) prior to the expiration of the (refund or replacement) guarantee period.
Instant falloff: This occurs when a placed candidate reports for work, but leaves the employer at any time (for any reason) within the first week.
Consideration: The placement fee relinquished (paid) by the employer or the candidate relinquished (placed) by the recruiter.
Bilateral contract: The arrangement whereby the parties each exchange (trade) promises to do something for each other.
Unilateral contract: The arrangement whereby one party (the recruiter) must fully perform his activity (making a placement) before the other party (the employer) owes a duty to perform (pay the placement fee).
Reverse unilateral contract: The arrangement whereby one party (the recruiter) solicits (requests) a continuing offer (payment) from the other (the employer) in exchange (trade) for fully performing his activity (making a placement).
Start-stop second: The instant of time when the consideration passes (the trade occurs) by the candidate reporting for work. This ripens the agreement into a completed unilateral contract. Thereafter, the risk of loss has shifted to the employer.
Stop-stop second: The instant of time when the recruiter effectively resists the primordial urge to discuss a guarantee when no payment was made for the placement. After taking this class, the recruiter understands why it is simultaneous with the start-stop second.
The Situation Here
Now it’s on to John’s sitch.
The fee-avoider will attempt to show that there was a failure of consideration. This is a legal fallacy that appears logically sound. The prima facie (initial) defense is that the employer received nothing, so should pay nothing. There was no consideration. This is an extension of our natural “barter” bilateral contract thought process.
In the typical bilateral contract seen by employer lawyers (and judges), the parties “exchange” money, goods or services (the bargained-for consideration) during the contract period.
Bilateral contracts are formed (agreements are turned into legally-binding rights and obligations) by the mutual exchange of promises. So bilateral contracts include leases, purchases, and even corporate mergers.
Bilateral Contracts
That’s why people call the signing of a contract executing it. They’re talking about the vast majority of contracts – bilateral ones. These contracts are executory (unenforceable) prior to the mutual exchange of promises. Once they’re signed, they’re legally executed (formed) and therefore binding (enforceable) by either contracting party.
Your Fee Schedule Is Executory
Now that you’re getting smarter, you can see why saying a fee schedule is “executed by your client” is not legally correct. Your contract is unilateral. so it’s still executory. You solicited an offer, and you don’t accept it by promising to place. You accept it by placing. No contract. Just an agreement. Not binding. No placement, no fee.
It’s a reverse unilateral contract because the offeree (you) is soliciting the offer. (I tell you this not because it matters legally, but because telling it to your lawyer lowers your legal fees. Your lawyer figures you know more about this area of law than he does – a very thrifty thing.)
The Important Distinction
Anyhoo, promises in your unilateral fee agreement don’t create the contract. The execution (formation) of the contract occurs when the candidate starts. It’s execution by performance (not promises). Execution because (1) acceptance (performance by you), and (2) consideration (parting with the candidate) happen simultaneously. It is said that the mutual assent (offer and acceptance) and consideration merge.
So your acceptance of the client’s offer happens simultaneously with the consideration passing. That the start-stop second is at the beginning of the “start date.” That’s why the placement is your acceptance by passing the consideration to the client.
This is advanced analysis, but it’s imperative to dissemble the failure of consideration defense. Otherwise, employer lawyers use it and well-intentioned judges buy into it.
With an executed (completed) contract, the only place to move is forward. Post-placement.
Before class is dismissed, here’s the final piece of the failure of consideration fallacy:
The employment of your candidate is at-will. In the at-will employment arrangement (with no employment agreement for a fixed term), the candidate can quit at any time.
That is why it is legally impossible to have a failure of consideration in this unilateral contract. Your fee may be based on an annual compensation, but it is not conditioned (dependent) upon it.
The ‘Fairness’ Card
Occasionally, some clever employer lawyer figures this out, and uses some equitable (fairness) argument. It’s usually something like it would be “unfair” for the recruiter to be unjustly enriched by getting paid.
However, the counter is that “equity follows the law.” When you have a valid contract, the “fairness” yields to the bargained-for-exchange. The consideration.
Your Guarantee
That moves us into the guarantee, if any.
A refund or replacement guarantee is legally known as a condition subsequent. In this case, subsequent to the placement. That means the contract is fully executed, so the full fee is due. An expressed (in writing) or implied (Duh!) condition precedent (prior to the placement) is that the placement fee has been fully paid.
With an instant falloff, the full fee hasn’t been paid. So you don’t have a conversation about you honoring the guarantee. You have a conversation about the client paying the full fee. It’s your stop-stop second, and don’t blow it!
I hope that every recruiter attending this class gets their hands on Contract as Promise by Professor Fried. It’s invaluable to educate yourself and your lawyer (or even a judge). I’m honored to be using it as our text for this session.
Then organize your damages by using our unique Pre-Placement Activities Worksheet.
To get it,
- Say “Charles Fried, friend in need!”
- Go to www.placementlaw.com.
- Click the red JEFF’S ON CALL! button.
- Type Pre-Placement Activities Worksheet in the Subject field.
- Click Send.
I’ll reply with the worksheet.
Thanks for asking, John. Go get ’em!
Best always,
Jeff