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Jeff on Call: Splitting Fees Without an Agreement

Feb 26, 2009

ask-jeff2This article is the second in a long-term series of Q&As, and I invite you to participate — email me directly at jeff@placementlaw.com with your question. (Keep in mind you should always consult with your own attorney. Nothing contained herein should be construed as legal advice. It is for your information only.)

Q: Must I split my fee equally with another recruiter if there is no written agreement?

A: Only if that’s the deal. You can write an SFA (Split-Fee Agreement) on any terms you like. However, too few split-fee deals are in writing and disputes over them are too common.

It’s usually the candidate recruiter who’s in the hot seat and it’s usually the client recruiter (account executive) who doesn’t want to pay a 50% split.

Let’s look at the three ways this might arise:

  1. The client recruiter has not been paid. The candidate recruiter has a cause of action (legal claim) for breach of contract against the client recruiter. A properly drafted SFA will include the terms of payment (like upon the start date, upon payment by the client, 10 days thereafter, pursuant to the fee schedule term, or upon expiration of the guarantee period). It will also include payment of attorney’s fees, costs of suit, and interest to the candidate recruiter. It is imperative for the candidate recruiter to protect himself with disclosure requirements on the part of the client recruiter. Otherwise the candidate recruiter is on the outside looking in. Serious legal issues can arise if the candidate recruiter contacts the client directly or interferes with the candidate’s employment.The candidate recruiter is in privity of contract (a legally binding agreement) with the client. The candidate recruiter has derivative rights and is usually subject to all terms and conditions of the underlying fee schedule. Therefore, the SFA should be set up so the client recruiter pays regardless of whether the client does. This unconditional term places the pressure where it belongs, since the candidate recruiter has fully performed by recruiting and referring the candidate. Collection should be the client recruiter’s problem.
  2. The client recruiter has been paid but refuses to pay the candidate recruiter. There’s a simple way to construct an SFA that will protect the candidate recruiter. Just define exactly what constitutes performance by the candidate recruiter. Is it identifying the candidate? Recruiting the candidate? For what position? With whom? Does it include interviewing the candidate? Coordinating the client recruiter interview? Coordinating the client interview? Assistance with hand-holding, on-site interviews, reference checking, relocation or extending offers?
  3. The client recruiter has paid the candidate recruiter who refuses to return the payment. These usually involve a “falloff” (where the candidate leaves before the guarantee period expires) and the client is demanding a replacement or refund of the fee. However most cases revolve around some waiver by the client recruiter of the fee schedule terms. Often the payment of a refund where a replacement only was promised, or an extended guarantee. The candidate recruiter is not bound by these modifications unless she specifically consents.
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