What Happens to My Fee When My Client Buys the Candidate’s Employer?

Hi Jeff,

You have helped me collect fees twice in the past, and the Jeff’s On Call! column has greatly contributed to our success. This is just indispensable.

I have a question that really needs answering, and would appreciate your help.

A client of mine who has hired about 6 to 8 sales reps from me in the last few years gave me a search for a sales person when I ran into him at a trade show in Las Vegas. I placed the sales manager who gave me the search.

I scheduled 8 interviews and he liked one candidate best. They are scheduled to meet for a second interview with the VP of sales again soon. The candidate currently works for a competitor and the word on the street is my client may be purchasing them as soon about the same time as the interview. It has been a rumor for months.

The sales manager told me he did not know if they would pay my fee if they buy the company because the sales rep would be an employee of their company. I told him I didn’t know the legal ramifications, but as far as I am concerned I set up the interviews and will be due a fee.

It is obviously the right thing for them to do, but are they legally required to pay me.

Thanks, Jeff.

Regards,

Tony Warsavage

J. Zachary Associates, Inc.

Jeff Responds

Hey Tony!

Yours is a super JOC inquiry from a superstar, and my chance to help you and many others. We appreciate your appreciation!

The “acquisition mission” gets complicated, so let’s get our worldwide webbers prepared. Here’s how:

Go to www.placementlaw.com.
Click the Placement Fee Collection Quiz at the beginning of the bottom row.
Take the PFCQ.
Click the Placement Law Language Quiz button in the middle of 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.
Then come back to this screen.

Okay, now we’re ready.

A merger or acquisition involving a client company is a supervening event. That means it can eclipse an executory (incomplete) contractual obligation.

In the unilateral contract that exists, a contingency-fee recruiter must fully perform by making a placement before the obligation to pay arises. Until then, the contract is executory and no enforceable rights inure to either party. (It can also be analyzed that this isn’t even a contract since neither party is bound to do anything. Using that analysis, the contingency-fee agreement is merely an “agreement to agree.” I prefer the executory contract analysis since it sounds like you really have a serious buyer.)

An acquisition during the executory phase of a placement would appear to terminate the still-unenforceable agreement. However, it is customary and usual (common) for the acquiring entity to assume (accept) the obligations of the acquired entity. (Similar terms are customarily and usually inserted for reciprocal obligations in a merger.)

Your lawyer can help you by adding something like the following in your fee schedule:

The fee will also be due from name of client in the event name of client acquires or merges with another entity currently employing any candidate referred by name of your business.

(Never attempt to modify the terms of your fee schedule without checking with your lawyer, since state laws vary widely and constantly change.)

It’s also customary and usual for executory (in-process) contracts (like pending placements) to be assumed and honored (paid) by the acquiring entity. However, the terms of each M&A (merger and acquisition) are different.

The contingency-fee placement agreement is unique in acquisitions because the supervening nature of the agreement eclipses the still-executory single-candidate placement.

Additional complications also arise because it is virtually impossible to show that the referral caused the hire. Further, was it really a hire? The “facts” are completely controlled by the two entities and the too-cooperative employee-candidate.

The more you think about this, the crazier it (and you) can get. So the best thing to do here is to stake your claim. I did when I worked a desk, and it was done to me when I was in HR as my employer was acquired.

Tell your lawyer that major motivator, and remind him that saving souls is why he went to law school. Have him lubricate his ol’ Smith-Corona Superspeed (Google it), and plunk out a letter to the CEO of the (almost contractually-bound) client that states:

The date and terms of your fee schedule.
The name of every candidate referred.
Identification of every pending placement.
Your understanding that an acquisition may be occurring.
Your intention to enforce your fee payment against all entities if any placements occur.
A request for confirmation in writing within 10 calendar days from the date of his letter that your fees will be honored by either of the parties to the acquisition.

You’ll never have more leverage than you have right now.

It’s imperative to set this up properly before an acquisition begins. That’s when you’re what business brokers refer to as a “royal pain.” (After the backslappin’s over and the deal is sealed, you’re referred to as just a “pain.”) During the courtship, sellers are always nervous. You can only hide so much dirty laundry. Then you forget where you’ve hidden it. Except for the pesky stench. It makes you downright jumpy.

The last thing in the world secretive sellers want is some undisclosed third-party claimant derailing a deal. With a lawyer. Who types. On printed letterhead bearing his name. By overnight mail to the biggest muckety muck there. (No e-mail – unless your lawyer’s submitting his resume and fee schedule.)

Once an escrow or similar buy-sell exchange is opened, you can file your claim for payment.

A tribal treble is usually necessary, since you must get top management’s attention. But that “Whoop!” becomes a “Whoop-tee-do!” when it yields volume placements.

Tony – Now I’ll remind everyone that your last name really is Warsavage. How appropriate for a headhunter worthy of his name.

“Acquisition mission” accomplished.

Best wishes for success, all!

Jeff