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Jeff’s On Call!: Candidate Fee Reimbursements

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Aug 29, 2011

This week’s inquiry comes from Neil Arden:

Hi Jeff-

Enjoy your column!

Thank you for providing you services to the staffing community through the Jeff’s on Call column. I look for your columns and articles in The Fordyce Letter every month and would recommend everyone in recruiting profession to do as well. They too will see how your responses and tips are insightful and helpful when needing advice for different situations.

A candidate we want to hire has an agreement with a recruiter who placed him at a bank as a mortgage banker. It is a 100% commission job but receives benefits. He has been there for 3 months and has not had any luck closing loans. The deals he has brought to the table for the bank have either fallen through or been put on hold because of the overlays/underwritings of the bank. With some of the new regulations arising from the Dodd-Frank bill, he doesn’t see the light at end of tunnel with this company. He feels it is best to look around, but when he approached his recruiter who placed him at his current position (in good faith), the recruiter told him he will have to reimburse him the $10,000 placement fee he received from the bank.

My question is regarding a non-salaried/exempt employee; is a candidate liable to reimburse the placement fee to the recruiter, if the candidate wants to resign from his company within the guarantee stated by recruiter, if he is not earning enough income to provide for his family?

Is this agreement enforceable in court, when an employee cannot survive financially nor provide for his family?

Thank you!

Neil

Hi Neil,

JOC inquiries like yours help all recruiters to know the law. That’s our mission. Thank you for not only helping us, but letting us know it’s “Mission Accomplished!”

Today we’re starting a searcher search party.

A member of our tribe has wandered off the recruiting reservation. It sounds like this tenderfoot attempted to write a CAA (candidate acceptance agreement), but instead wrote a letter to the Federal Trade Commission (FTC) and that new, powerful Dodd-Frank-created federal Consumer Financial Protection Bureau (CFPB). He also copied in his state consumer protection and licensing agencies.

CAA’s are quite popular, and many recruiters use them effectively to make more placements. We’re very careful in the drafting however, because the objective is to induce a capricious candidate to accept a good offer, not to reduce a good recruiter to rubble. Our tender-footed friend was just too clever. I shudder at what the rest of that masterpiece looks like! Probably a bar exam for a placement lawyer.

That CAA created an applicant-pay-fee (APF) contract. Unlike the business-to-business relationship of an employer-pay-fee (EPF) search, this is a consumer transaction. That makes all the difference on the placement planet.

A properly drafted APF contract looks like a credit card application. Compliance with the statutory notices, truth-in-lending requirements, and mandatory statements are heavily regulated by the federal government under Fair Credit Reporting Act (15 USC 1681, et seq.) and other federal and state laws. The forms often have to be submitted to a government agency for approval prior to their use. Many of the states also require a license to place on an APF basis. Bad medicine for a renegade recruiter.

You might ask, “Why? There was no credit extended. There was no payment plan. Nothing would be owed if the candidate just stayed. It was just reimbursement to the recruiter for the fee.” The answer is that the FCRA is used to give the FTC and the states broad power over private contracts.

So the candidate should inform the recruiter that he’ll forget what he signed if the recruiter uses the CAA to start a campfire and send up some smoke signals for help.

The unfairness of this to the candidate is unfortunate, but legal issue is the consequences to the recruiter. The searcher search party’s over.

So hire that candidate, Neil.

Mission Accomplished!

Thanks again,

Jeff


If you have a legal question you’d like to have Jeff answer here on The Fordyce Letter, check out Jeff’s On Call! and submit your question.

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