Oct 1, 2007

You’ve presented the perfect candidate, and interviews have taken place. An offer is about to be made (and probably accepted) when you get the call from an HR representative who tells you they won’t pay you a fee because (pick one):

– The candidate was already in our database.
– We (would have, could have) found the candidate on a job board.
– Our hiring manager already knows this candidate.
РAnother recruiter previously sent the r̩sum̩.
– We’re hiring the candidate for a different job.
– The time lag between the referral and the hire was too long.
– We didn’t have a signed agreement.

Many of us have been haunted by one (or more) of the above scenarios, since they are the top seven reasons cited for fee avoidance. As one reader told us, “This news was about as welcome as a whoopee cushion in a church service.”

When we queried folks on both sides of the spectrum (HRs and TPRs) the answers were vastly different. It is not likely to change until everyone in the hiring process agrees to some standard, and the odds of that happening are about as likely as Ralph Nader becoming our next President. The only antidote is to have a signed agreement with the employer before you submit any candidates. And many readers are now requiring a signed agreement with the candidate as well. We tend to get so euphoric when a company tells us about their urgent need that we refer candidates without a written agreement. Most, if not all, of the horror stories we hear wouldn’t have happened if a contract had been signed.

Let’s look at some of these excuses:

The candidate was already in our database.

The operative question should be “How did the candidate get there?” Were they direct respondents to a company’s website or ad, referred by another third-party recruiter, the result of an employee referral, or just one of hundreds (or thousands) of résumés down-loaded from a cybersource?

This is one of the downsides to the Internet. Companies that have paid big bucks to access the database/job board world are prone to harvest as many folks as they can. All the filters in the universe won’t prevent useless candidates from getting in. They can, however, screen out the very people they may want.

If a recruiter brings a candidate to the attention of the hirer, even if the candidate was previously found in the database by the company, the recruiter should be paid for the recommendation. In the real world, no in-house recruiters want to admit that they blew it.

As long ago as 1996, Gary Knisely of Johnson Smith and Knisely said, “The search business is not about names. It’s about understanding your client’s business from a senior management perspective – as an insider, not an outsider.”

We (would have, could have) found the candidate on a job board.

And a thousand monkeys typing on a thousand typewriters will sooner or later re-create the Iliad and the Odyssey.

Just because they’re in the database or on a job board, that doesn’t mean they’ve ever been noticed (much less contacted) by the company. They’re probably also in a phone book somewhere, but that doesn’t qualify them as an applicant or candidate immune from a recruiter’s fee.

Should a recruiter who harvests thousands of résumés from the Internet, then sends them to thousands of potential hiring companies, deserve a fee if one of these shotgun efforts results in a hire? Absent any intervening events, a fee is probably due. After all, the company would never have known about the candidate even if the methodology used to get that information to them is less than professional.

Should a recruiter who refers a candidate with the candidate’s knowledge and authorization be prohibited from collecting a fee if the company uses that referral to go back and find the résumé in their database, even if they never previously found it in their database or acted on it? That’s a problem we hear of on almost a daily basis. I wish there was a definitive answer to this growing predicament, but there probably isn’t. Unless there is a signed agreement between the parties, you are probably at the mercy of the hiring company to do what is right. Having a résumé in a massive database that does not pop up until prompted by a recruiter should be treated as though that database résumé never existed, and the recruiter should be paid the fee. To do otherwise is just unwarranted and borders on dishonesty. But no hirer wants to pay a fee, and they sure don’t want their own ineptitude pointed out to them. So you can expect this to be an ongoing problem.

If recruiters were paid just for supplying a name, the most valuable tool might be the phone book. We are paid for getting the right candidate to say yes. Trainer Larry Nobles told our readers, “When I ask recruiters what our real worth is to our clients, I generally get answers like finding candidates, screening candidates and referring the top ones, etc. We seem to think of ourselves as an old Yenta who is constantly trying to make the right match. However, our worth to the client is not at the beginning of the search but at the end!

“If we recruited 50 candidates for the position and screened them down to 10 to present to our client, and three were interviewed, two offers were made, and none accepted, then of what worth are we? None? No, worse than that! We just cost everyone a lot of time and money. Our client loses money every day that job goes undone, so our worth is not to initially find candidates. It is to eventually get the best one to go to work for our client. In fact, one VP told me that my worth wasn’t that I could find good candidates for him, but that I could help him hire them.”

And just because a candidate resides in the company’s database, that doesn’t mean a hiring company will ever find them. The following true story from one of our readers is illustrative in this context:

Roy M. ran a large firm (almost 1,000 employees), with hundreds of thousands of résumés stored in his HR department’s database. Roy’s firm had a critical opening that cried out to be filled because the vacancy was costing his firm several thousand dollars a day in lost business and a major potential contract depended upon having this unusual skill in house. The previous employee with this particular knowledge had been unexpectedly and permanently disabled. The HR staff had done their due diligence by performing all the keyword searches of their database’s residents, to no avail. The job had been advertised extensively and was posted on several job boards as well as the company website. HR had pleaded with employees to take advantage of the generous referral bonus the firm offered, but no suitable candidates had been surfaced. They didn’t want to pay a fee, but Roy was screaming at them every day to get this job filled, so they gave the opening to several search professionals, including me. After all, they were desperate, and the shouting from above was getting louder with every passing day.

I was one of the “lucky” search firms who were given the opening. This was an “anti-agency” firm, one with whom I had tried unsuccessfully to do business for several years, so I was surprised to hear from them. The closest I had previously come to doing business with them was when they sent me one of those ridiculous third-party recruiter agreements I refused to sign. They sent it again after calling me about this opening, and I still refused to sign it.

Serendipitously, I happened to have the perfect person for the job. I called the candidate, who confirmed the fact that he was absolutely ideal for the position. His résumé did not mention the vital experience needed for this particular job because it was prepared with a different opening in mind, but through extensive interviewing I had uncovered the fact that he had experience that exactly matched the needs of the company.

I mentioned the job and the company to him, and he was excited about putting his oar in the water. However, about six months earlier he had submitted his résumé directly to my “client” for a different job in a different department, and he had received a “Dear John” letter. He had also put his résumé on several Internet job boards, but none of the experience necessary for this job appeared in his résumé because he considered it to be peripheral in nature, it existed two jobs ago, and he was told to be brief in his submissions.

I rewrote his résumé to reflect that portion of his experience that mirrored the job specification. No hyperbole. No lies. No fudging. I checked his references to verify what he told me. Then I called the HR person who had first contacted me. I said, “I have good news and bad news. The good news is that I have a candidate who is a perfect fit for your critical job and has a definite interest in working for your company. You may or may not want to turn this into a conference call with the hiring manager. That’s up to you based on what I’m about to tell you.

“Here’s the not-so-good news. This person applied directly to your company several months ago for a different job, and you turned him down. Also, this person’s résumé is on the Internet in several places. Even though I’m sure he’s in your database, you will never ever find him. He can be on your payroll one week from today, but before I release his name and set up the personal interview, you must agree in writing to pay our full fee and to accept all of our normal terms. I am aware of your company’s predicament and the fact that your firm loathes doing business with people like me. I am also aware that this will probably be the last time I’ll ever do business with you. If you are agreeable to these conditions, I will email his résumé to you without his contact information or name, along with our service agreement. Within 24 hours, you must email your acceptance of our agreement to me, at which time I will release his name and arrange for the interview. If I don’t hear from you within 24 hours, my next contact will be with Roy. Check your email within the next half hour to see his résumé, and I await your return communication.”

Within an hour and a half, I received a return email confirming our agreement, and an interview was arranged for the following afternoon. After a four-hour interview session with everyone involved in the hiring loop, an offer was made and accepted. One week later I received a check for $33,000.

This is a job for which I would never have considered doing an actual search because it was a needle-in-a-haystack, time-consuming chance to almost guarantee failure. Nor would I have done business with this company under their terms, no matter how much I might have needed the business. The fact that the appropriate candidate was already in my inventory and that we had discussed this rare skill was pure luck.

Our hiring manager already knows this candidate.

How many times have you heard a variation of “Hey, I know this guy” from an employer attempting to avoid paying a fee for someone you refer? Or “Our sales manager already knows this guy,” “Our engineering manager worked with her at another company,” or “We knew about him already.”

Does the fact that someone in a hiring company knows or knows about your candidate shield them from the liability to pay a fee? Judging by the calls we get, the answer is a resounding YES from the hirer side. Unfortunately, knowing about a person and knowing that he or she is willing to consider a new job are often far different animals.

The scenario almost always happens this way: A candidate is referred to a company. Somewhere in the review loop, someone says, “Hey, I know that guy.” Often the recruiter is told there is no interest and then, mysteriously, the person is hired through a personal contact made by the person within the company who knows him. How does a recruiter still get paid?

In the absence of a direct declaration of candidacy by the candidate having recently submitted a résumé for the job in question, a fee is definitely due to a recruiter who brings the candidacy to the attention of the hiring company. Jogging an employer’s memory about a bygone acquaintanceship should not negate the obligation to pay the fee.

The obligation to pay for the referral comes with more than just mentioning a name of a potential employee. Truth be told, probably every new employee previously knew someone within the company they joined.

If knowing (or knowing about) someone allowed a hirer to disaffirm the payment of a fee, no fee for a senior-level search would ever have to be paid since these high-visibility openings are almost always filled by individuals who are regularly in the news or who hobnob at some level with the very people who hire them. The fee is paid because the recruiter is able to convert the person from an acquaintance to an interested and active candidate.

The key words are “proximate cause,” “substantial cause,” “efficient procuring cause,” or even the shorthand nicknamed “but for” terminology.

In olden days, when “applicants” sat across the desk from “counselors” and signed a copy of the “send-out slip” before going on an interview, there was little question as to the source of the referral. Nowadays, when a recruiter in Peoria might arrange for a referral of a San Mateo candidate to a company in Flushing, getting a “send-out signature” is a little tougher. The paperwork and documentation of the event still occur, but for paper trail file purposes only.

Much of the attendant anguish of the “We already know about this guy” syndrome can be allayed by proper candidate preparation, but even that can confound in these days of faxes, email, and the Internet, when candidate backgrounds can be instantly broadcast to a gaggle of potential hirers, often without the knowledge of the candidate – what we refer to as drive-by shooters.

Another recruiter previously sent the résumé.

This assumes that a fee will be paid – to someone – just not to you. It is known as a Candidate Source Recognition or Candidate Ownership problem and may be the cause of more heartache than any other employer pretext. It is also the excuse that causes employers to, perhaps, be liable for the payment of two fees. Much depends on the written agreements involved.

Many years ago there existed an organization called the Professional Employment Research Council. It was formed as a liaison between HR types and TPRs in an attempt to educate employers on how to work with our industry. It didn’t last long, as it appears that many human resourcers are uneducable, but one good thing that did come out of their efforts was the verbiage regarding who should get paid when duplicate referrals are made. Their solution (which they tried to teach to employers) was to insert the following into all written communications with recruiters:

In case of more than one referral, the source whose referral caused the action leading to the eventual hire will take precedence. No fee will be paid unless the hire was the direct result of interest initiated and stimulated by the agency.

This “stimulation of interest” policy elicited some positive action on the part of many firms. Its use was encouraged with the following attempt at enlightenment:

Any employer who puts that simple phrase into an agreement will eliminate 90% of all the agency fee disputes that they might ever have so long as they require everyone to sign the agreement. They will also eliminate any requirement for logging in or date stamping résumés, which can substantially reduce record keeping expense. Most fee disputes result because one résumé (or phone call) got there first, but another (duplicate from another source) actually stimulated interest and resulted in the hire. Case law and arbitration history clearly favor the “stimulation of interest” method as more equitable than “résumé logging.” In other words, the one that stimulated interest usually wins in court, so why not make that company policy.

Résumé logging or “first contact” as a policy actually invites fee disputes when situations like the following occur: Recruiter A sends in a résumé in July when no opening exists. Recruiter B sends in the same résumé in October when an opening does exist. Both claim a fee. Recruiter A sends in a résumé in July and there is no interest. That same applicant initiates direct contact via an advertisement in October. Recruiter A claims a fee.

Recruiter A, knowing of the “first contact” policy, rushes in a poorly prepared résumé taken over the phone in order to beat out Recruiter B. Recruiter B interviews the applicant and significantly improves the résumé, sending it in a few days later. The second résumé stimulates interest. Both recruiters claim a fee.

Recruiter A sends in a résumé which is logged in and routed to Engineering Manager #1, who puts it in his bottom drawer or his waste basket. Recruiter B sends in a résumé several weeks later which is routed to Engineering Manager #2, who calls Recruiter B with some questions about the candidate and then subsequently hires him. Both recruiters claim a fee.

Note that none of these problems occur when the phrase quoted above is worked into the agreement. Most experienced recruiters actually prefer the stimulation of interest approach because they’ve all had problems with résumé logging and most consider stimulation of interest the only fair way.

Because the scenarios are endless and often exasperating, attorney Jeff Allen recommended scrapping the “causation” frustrations by merely using a calendar date as the benchmark denoting who gets paid. He recommended that the following be put into all of your agreements:

Client shall pay a placement fee to (name of your business) if Client hires or otherwise engages the services of any candidate referred by (name of your business) in any position within one year from the date of the last communication from (name of your business) concerning said candidate. This shall also include direct or indirect referrals by Client of said candidate to any other person or entity within one year. Said fee shall be paid by Client regardless of the claim of or obligation to any other party regarding a placement fee for said candidate.

Short, sweet, and contractually unassailable. While it might not be the fairest method to determine who gets the fee, it puts the “causation” issue in the back seat.

We’re hiring the candidate for a different job.

“You submitted your candidate for Job A. He didn’t fit that position so we hired your candidate for Job B; therefore we don’t owe you a fee.”

An old standby – in fact, one of the oldest tricks in the book. But it’s still very effective because the placer ties their own hands with the fee schedule.

Changing the “position” is totally within the power of the employer. So you’ll be somewhere between a rock and a hard place unless you use words like:

The fee shall be due if the candidate is engaged to perform services in any capacity as a result of the referral.

“Different” can mean “difficult” if you neglect to use these words. It doesn’t take much to change the job duties so that they appear to be different from the JO. Statistically, this happens over half the time anyway. An employer doesn’t really know what the job will be until it hires someone. If the candidate’s ego will be bruised by a lower title, a different one can always be used. The employer just says you weren’t “engaged” to “perform” a search for that job.

What can you do? Exclude anything in your fee schedule that ties you to a title; and instantly review the actual job at the actual compensation with your still active candidate.

The time lag between the referral and the hire was too long.

“Your referral was nine months ago and we only recognize referrals for six months or less.”

This is one of those clauses we find in almost every placement service agreement (PSA). Companies love to stockpile or warehouse candidates until their referral period is up, then surprisingly, they show up on their payroll with no fee having to be paid. It can happen purposely or because of “hiring freezes” or “position on hold” situations. We know of one of the big CPA firms as well as several software vendors that deliberately wait until Day 366 to make contact with candidates submitted under a one-year fee bounty. Here’s a typical example of the words and music put in the agreement of a Fortune 100 firm:

Notwithstanding any other provision of this agreement, Recruiting Firm will not be entitled to any service fee unless Company retains a candidate within one year from the date Recruiting Firm presented such candidate to Company and such candidate was not previously presented to Company by any other entity. Moreover, if a candidate presented by Recruiting Firm is rejected by Company or rejects an offer made by Company for a position described herein, Recruiting Firm shall receive no fee even if the same candidate is later presented for the same position by another recruiting firm and is thereafter hired by Company.

We didn’t have a signed agreement.

“I know you sent us an agreement to sign, and if we’d agreed to your terms, we would have signed it. Since we didn’t sign it, there is no agreement to pay you a fee for this hire.”

How often have you heard “It’s being reviewed by our legal department” or “The hiring manager hasn’t finished looking it over”?

Attorney Jeff Allen’s Placements & The Law column in our March 2004 issue was entitled “Getting the Employer’s Signature Agreeing to a Full Fee,” in which he spelled out the ABCs of the methodology. In a previous writing, he succinctly explained why:

This excuse is probably the most predictable prestidigitation in the entire bag of HR tricks. You’re the dealer, and you deal the trump card to the employer – a fee schedule (or letter) that has a place for the signature of the hiring authority.

It’s a great idea: Get the employer to sign while the tears are falling. The only thing is, you don’t. You think the JO is so urgent that you start recruiting, presenting, referring, and sending out candidates even before the schedule arrives.

Not much incentive for the employer to sign. Considering that human resourcers and supervisors often don’t have the authority to sign legally binding documents anyway, there’s even less chance you’ll get it back. If you do, it’s probably signed with invisible ink. Still you go on thinking you have a deal – everyone is so nice.

Then one day the tears turn into a smile. The next day the smile turns into a grin. Eventually the grin turns into a chuckle. They play the trump card as they cackle, “If we’d agreed to the fee, we would have signed your fee schedule.” Now it’s your tears that are falling. A little levitation levity makes for lively litigation. Only you’re the loser.

You must not have a place for the hiring authority’s signature on that schedule unless you won’t begin the search without a signed copy. A fax or email authorization is fine. A promise isn’t.

Implying acceptance by the “acceptance of referrals” is a dangerous way to do business. Particularly when you can’t even prove knowledge of the fee. But that’s what you’ll do no matter what this lawyer says.

No matter how agile your lawyer, some states require that fee agreements be in writing. There will be more states following suit. And some states require that you be licensed or “registered” to be eligible to collect a fee from a client in that state regardless of a signed agreement. If you think that getting an agreement signed before working a JO is just a minor inconvenience, perhaps you’re in the wrong profession.

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