Whose Fee? Phantom Recruiters and Contract Terminations

Dear Jeff,

I have been in the industry for over 15 years recruiting across Europe and the Middle East, permanent search and selection for senior management up to board level positions across a variety of industries.

My team and I always look out for your column with intense interest. Even after 15 years in the industry I constantly learn new insights to improve our business and overcome the more unusual challenges. Thank you for that, because we could never get the information anywhere else at any price.

We have a long-standing client that asked us to start a contingent search a few months ago. We sourced a candidate, set up interviews, and finally an offer has been accepted. However they now realize the CV was presented by another agent a year before, and are looking to pay the 100K USD fee to the other agent! Our terms with them lapsed just before the offer was made. Due to the dispute, they don’t want to renew the terms until the issue has been cleared.

What would you advise as our best course of action?

Many thanks for all your help and support. It is truly appreciated!

Kind regards,

Daniel Paisley

Hi Daniel,

The phantom strikes again!

Always perfect timing – regardless of the zone. Always after you’ve completed the placement. H-m-m-m. Ve-r-r-ry suspicious.

Thanks for the kind words. JOC inquiries like yours are a reminder that our recruiting relatives are all over the world. Truly we’re a Fordyce family bound by our bond.

I’ll answer according to general legal principles, but always check with attorneys in the specific jurisdictions involved. Laws in different countries and local regions can vary widely.

Yours is not only a phantom recruiter defense case, but apparently you’ve got a contract termination defense issue as well.

Although I haven’t see the phantom’s agreement or yours, let’s start by overcoming the phantom recruiter defense.

Phantom Recruiter Defense

Invariably, the phantom recruiter defense arises from:

A fee agreement with an earlier recruiter that contains a referral period;
An employer who doesn’t hire from the earlier referral, and;
No knowledge of the earlier referral by the later recruiter.

Whenever you get one of these, you must move fast. If you don’t and the phantom is paid, you’ll lose your leverage.

This really has nothing to do with your right to payment, but the phantom recruiter defense is the finale to a completed placement play. By that time, the employer and the phantom have justified payment to the phantom legally.

Before we proceed, let’s review how fee collections work.

Go to www.placementlaw.com
Click the Placement Fee Collection Quiz button in the middle of the bottom row.
Take the PFCQ.
Click the Placement Law Language Quiz button next on the bottom row.
Take the PLLQ.
Click the Answers to Placement Law Quizzes button at the end of the bottom row.
Grade yourself on the PFCQ and PLLQ.

Now back to our phantom recruiter defense.

As you know from my writing, referral periods can indeed be enforceable. However, many are not. They’re often poorly worded, inconsistent with other terms and conditions (requirements), and don’t cover what occurred in this deal.

So here’s what to do:

1. Immediately request a copy of the earlier fee agreement.

Requesting this nicely but persistently from the employer tends to stop any pending payment to the phantom. That’s good, because you deserve to be a part of the conversation before a final decision is made.

You don’t want your valued client to be liable for two fees if it’s not necessary. You’re not going to walk from a well-earned fee if a placement goes down, but what’s the big secret?

This:

Is taken seriously by the employer, since it figures you will be having your lawyer review the case. (Of course, you didn’t say anything about that.)
Signals you are as interested in getting paid as you are with “retaining a valued client.
Requires identifying the phantom.
Questions the legal efficacy (enforceability) of the phantom’s agreement.
Challenges the person (probably an employer lawyer) who gave that “enforceable” opinion.
Undermines the job security of the employee(s) responsible for not catching the duplicate referral and working with you.
This request tends to really move the collection along. It’s the first one to make, because of its strategic value.

2. Request details about the earlier referral.

Once you have the phantom’s agreement, you need facts about the earlier referral. (We’re looking for “additional facts,” but keep that to yourself.)

Again, nicely ask the employer.

Most recruiters ask the candidate first. If the candidate is cooperative, this generates a self-serving scenario that usually only hurts the collection. That’s because even if the candidate says you were the only recruiter he ever knew, the phantom’s contractual referral period may apply. In fact, the phantom’s referral could have even caused the hire without the candidate’s knowledge or consent.

It’s easier to talk to the candidate (assuming he’ll talk), but the candidate isn’t a contracting party. At best, he’s an interested witness (biased observer) and the subject matter of the contract. No sale there.

Talking to the phantom is a mess. Please let him stay in the shadows unless you’re interested in a split-fee deal.

Let’s say the basis for the phantom’s claim is a referral period. Why do you even care? Because right or wrong, the employer has raised it as a defense. So you want to check it out and make sure the phantom is entitled to get paid.

How is “referral” defined in the phantom’s agreement?

Was there an “HR only” requirement? Was it necessary to discuss the candidate before submitting the referral? How about a candidate consent requirement? A resume submission requirement? A fee-clearance requirement for each submission? An agreement for one gig and a submission for another? (Daniel — That looks like what happened here. Now the question is whether the agreement precludes payment.)

Using the phantom’s agreement and plugging in the facts lets you know whether he has a valid claim.

That’s extremely helpful if he doesn’t, because it frees up the money for you. If he does, it’s legally still irrelevant.

3. Present the “additional facts” to the employer.

Notice I haven’t advised legally attacking the “enforceable” conclusion. That rarely works without legal representation.

I like using “additional facts” because it gives the decision-makers cover to unmake their decision. “Additional facts” work because considering them doesn’t jeopardize the jobs of the politicos who caused the double-or-nothing dilemma in the first place. They also enable you to sidestep the legal argument that paying the phantom somehow forecloses your claim.

If you’ve really worked hard on the search, this can be coupled with a thorough review of your efforts. Our Pre-Placement Activities Worksheet really helps to organize your approach. It’s yours for the clicking.

To get it,

Go to www.placementlaw.com.
Click the red JEFF’S ON CALL! button.
Type Pre-Placement Activities Worksheet in the Subject field.
Click Send.

I’ll reply with the worksheet.

Now, let’s talk about the contract termination defense — your “lapsed” fee terms.

Contract Termination Defense

1. Waiver and Estoppel

Let’s assume the contract termination really forecloses your fee for a pending placement. That would be very unusual wording, but we’re assuming the worst.

Corpus Juris Secundum You’re in the area of contract law known as waiver and estoppel.

A waiver is the voluntary relinquishment of a known right. The American legal encyclopedia Corpus Juris Secundum helps to explain how it’s a 100K USD stealth contract enforcer:

A waiver may be express or it may be implied from the acts or conduct. . . An intent to waive may be inferred from . . . a party’s [employer’s] acts or conduct, even though there was an actual but undisclosed intent to the contrary. . . The provisions of a written contract may be waived by acts or conduct [by the employer] which justifiably leads the other party [the recruiter] to believe that such provisions are waived. (92 CJS 1062)

The and estoppel part is simply lawspeak for “You can’t have it both ways.” The confused or conning client led you on, Daniel. You were justifiably led (to use Corpus Juris’ phrase) into thinking you would be paid for placing this candidate. So the employer is now estopped (stopped) from asserting the right of contract termination.

Now that you understand how waiver and estoppel work, you can see how the employer’s failure to notify you about the phantom recruiter waived its right to assert the phantom recruiter defense too.

2. Implied Covenant of Good Faith and Fair Dealing

There are things a court will enforce that don’t appear on your fee schedule.

For example, there’s nothing that says the employer will inform you that a candidate has been hired. It’s implied to effectuate the intent of the parties.

Here’s how another American legal encyclopedia American Jurisprudence explains implied covenants to extend that contract term through the placement:

There are many things a court will enforce because they are logical to carry out the contract , or it appears the parties [employer and recruiter] intended them. (17 AmJur2d 653)

Since that extension of the contract term to complete the pending placement wasn’t in writing, a court will imply it to inject good faith and fair dealing into the performance. If the employer and you would have thought to include a provision for post-contract placements, you would have included it. This protects the expectations (intent) of the parties.

That’s how to deal with that phantom recruiter defense and that contract termination defense.

Best wishes on collecting that 100K USD, Daniel!

Jeff