Jeff’s On Call!: Enforcing Old Fee Agreements

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Sep 12, 2011

This week’s inquiry comes from Tarin Yankovich:

Hello Jeff,

First off, I have been a fan of you and the Fordyce articles you write for years, thank you for all your great advice! Your experience and wisdom have giving me the foresight on numerous occasions to avoid situations that would have otherwise cost my firm valuable business. Here is a recent question that came up; I thought you’d be the perfect person to shed some light on it for me and possibly your readers.

I run a search firm in Los Angeles and run a national practice within the Finance space. We work with many of the largest finance companies in the world. As most, our business goes in cycles with clients, meaning we’ll do many searches with a client one year and the next we won’t. As a result, sometimes a couple years go by during which time we won’t work with a client but still have contracts with them.

I have one particular client I worked with in 2007; we did many VP level searches for them and they were happy with our results. At the time I had several contacts at various levels within the organization in Chicago, Boston, and New York.  Since the 2009 recession and with a myriad of internal changes at the company literally all of my original contacts both in HR and management have moved on, their assistants have moved on, and even the President of the firm has moved on. Additionally, the firm changed their name a couple years ago using hyphenated name, and recently the firm has dropped the old name altogether and only uses the new one.

Here is my dilemma, I have continued to call on the firm and know who most of the new players are.  Recently I found an open door and am trying to rekindle this relationship with a new search assignment. I don’t want to lose momentum with a new contract if I don’t have to. I have a signed contract, my contract (not theirs), from several years ago, at a percentage I really like. I don’t want to haggle with a new HR person, renegotiate a good contract, and possibly lose the search or get a lower fee than I negotiated pre-recession. However I’m smart enough to see a couple possible issues. I have a contract, with no expiration date, which is signed by a signatory who is no longer there, under a name that the firm no longer uses. I do have some wording that says should the signatory leave his position the contract is still valid, but I fear I’m facing a few issues and want to make sure I’m covered. So, is my contract still valid?

Any guidance would be much appreciated.  Thank you Jeff!


Hi Tarin,

Thanks for the fan mail!

Amybeth Hale and the rest of the Fordyce stars will magically beam our conversation around the placement planet. You’re helping us make the world safe for placement!

Now, on to your inquiry.

If I were still working a desk (Oh, I’m not? Sorry!), I’d be smart like you. Assumptive too. I’d assume I had an enforceable agreement with the client. That’s a five-figure assumption.

There are five reasons why:

1. The terms of your fee agreement are more favorable than you’d be able to negotiate now.

This means the reward of placing pursuant to it justify the risk of it being unenforceable.

Who knows what might happen if you start making waves? Perhaps you’d be hit with a PSA (placement service agreement). That would mean a low fee ceiling, a goofy guarantee, and a basic employer-lawyer wish list. Who needs that?

At best there would be delay and uncertainty until a deal was made. Just nonproductive HR happy-talk, hassling, and hiccups.

2. Your fee agreement covers the “successor liability.”

Although I haven’t seen that agreement, I’ll take your word that it covers this sitch.

If you’re right, great. But even if you’re wrong, there are other options.

Read on.

3. Your fee agreement is “impliedly assumed” by the buyer.

The implied assumption concept is legally like your five-figure one (with more words).

An implied assumption is the legal happening that happens “by operation of law” when a buy-sell agreement is executed (completed) that omits a liability. The buyer didn’t actually (knowingly) assume liability under your fee agreement. So you can budge a judge to assume the deal included the ongoing rights and liabilities of the biz. (Just like you!)

In the absence of an actual (knowing) assumption of liabilities, a contingent liability (like a fee agreement for a future placement) would likely be impliedly assumed by the buyer in conjunction with a sale of assets of a business. Why? What changed? Just the faces and maybe the places. But basically, the business continued intact. It even needs the same kinds of employees. There was just a change of ownership of an ongoing business.

The buyer could have discharged (eliminated) contingent liabilities, but this requires notice to the creditor.

You didn’t receive actual notice (“Hi, you’re history. Bye.”), and you didn’t receive constructive (pretend) notice (because there was no publication in a newspaper to “All Creditors” or whatever).

That’s the Legalese way to lay out the case for an implied assumption of liabilities. We use it to convince employer lawyers to pay and courts to make them pay.

4. Your fee agreement is “assumed” by the “successor entity.”

The usual scenario starts when the client acts on your referral. The interviewing process starts. Then somewhere in my famous “Ten Steps In The Placement Process,” the client tries to shoehorn in some new agreement with you.

Whoa! It waived its right. A waiver is the voluntary relinquishment of a known right. Here, the client says it didn’t know of your original agreement with its ancestors, or didn’t think it was bound.

You reply that it knew or should have known about it, since when it assumed the business, it took subject to (acquired) its contingent liabilities.

Now, the client’s estopped (legally stopped or prevented) from denying liability. It waived its right to do so.

Of course, it doesn’t have to hire your candidate. But that’s not the way it works. If they’re in love, a hike in the marriage license fee doesn’t estop the marriage. I know this for a fact. When it happened to us at the counter in 1972, this HR mangler had just enough money left to move the license celebration to Arby’s.

Isn’t this fun? We’re just jivin’ with the jokers using long words with many syllables.

5. It makes no difference when your fee agreement was signed, by whom, or where they are now.

All that matters is that someone signed it. “Unauthorized” or “authorized”, demoted or promoted, fired or retired, insane or sane, dead or alive.

Anybody with a signature who signs (“X” is fine) and sends back the agreement binds the client.

Best wishes for placement after placement under that original fee agreement. Your go-for-it” approach is just what it takes. Now you have the ammo to back up your assumption.

Thanks again for the fan mail and a super JOC inquiry, Tarin!


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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