Contingency fee recruiting has grown over the past 50 years into the largest segment of the placement industry. While today’s search firms bear little resemblance to the applicant-paid employment agencies that spawned them, one vestige remains: The fee is not considered due until the candidate actually starts. An “instant fall-off” means no fee.
It’s s though you’ve loaded a “feeshooter” and aimed it at your foot. You’re just waiting to pull the trigger when something happens between the acceptance and the start. It takes just one instant five-figure falloff to make you vow to never hobble away again.
We’ve been changing this since 1985 when we introduced it to TFL subscribers after a beta test with clients. It has worked very well. Nobody’s ever been arrested. Their success and our refinements over 25 years can now be yours.
Recruiters are often compared with real estate agents. The client is the “seller,” the job order and fee schedule are the “listing,” and the candidate is the “property.” Although not exactly the same, it’s a valid analogy. You’re legally an agent of the employer, deputized to find a candidate to fill the JO.
In that sense, your legal position is identical to a real estate agent. Lawyers cite real estate cases because there are so many reported, and judges rule based upon decisions in those cases. So right or wrong, your legal position is really identical to a real estate agent.
Now, stay with me here. It’s critical for you to understand where you are legally when you do this maneuver.
What if you had:
- Given a listing on a property to an agent;
- Been presented with an offer from a qualified buyer on the same terms that were in the listing; and
- Changed your mind?
If so, your seller’s remorse would still cost you the full commission. Why? Because regardless of whether the listing was signed (unless required by statute), regardless of whether it was exclusive, and regardless of the reason (better offer pending, change in the market, etc.), the agent was deputized to find a “ready, willing and able buyer.”
The California Association of Realtors standard form is typical:
I hereby agree to pay agent a fee of $_____ upon [a] sale . . . by agent, or through any other person, or by me, or if said property is withdrawn from sale . . . without the consent of agent, or made unmarketable by my voluntary act.
Whether the property is sold or not, the courts enforce payment of the commission. This is first-year law school stuff. Any local real estate attorney can give you case citations in your state going back at least a century.
What the listing agreement does legally is to create conditions to payment of the commission (fee). The promise by the seller to pay doesn’t become enforceable by the agent until he or she does five things:
- Finds a
- Ready,
- Willing and
- Able
- Buyer.
Since these five things must occur before the agent can recover the fee, they are conditions precedent. (Restatement of Contracts, Section 252)
Now, let’s look at the terms found on a typical fee schedule:
The fee for our services is earned if a candidate is engaged to perform services, directly or indirectly, by the client or any of its affiliates, as a result of our efforts.
Of course, there are variations on this wording (“hired,” “within one year from the last communication regarding the candidate,” whatever). It doesn’t matter because the basic conditions precedent (things that must occur prior to a fee being due) established in your fee schedule haven’t changed.
You won’t get anywhere until you do three things:
- Refer a
- Candidate who is
- Engaged to perform services.
So you can source, identify, motivate, recruit, and refer qualified candidates all you like, and you won’t get paid. These are all conditions precedent.
Let’s move on:
- An offer is
- Accepted by the candidate.
The fee schedule says, “if a candidate is engaged to perform services.” Technically, you can argue that the condition of being hired has been satisfied. Or that it is a condition concurrent to payment. (Restatement, Section 251) Translation: “Here’s the candidate, where’s the fee?
The problem is that, unlike the real estate listing agreement, the typical fee schedule is ambiguous as to whether the candidate is “engaged to perform services” upon acceptance of the offer, or upon the actual start date.
When attempting to interpret something that is ambiguous, the courts use rules of construction. One of them is that an ambiguity will be construed against the party who created it. Why? Because you prepared the fee schedule!
Then, if that fails, the court will look to the conduct of the parties to determine what they meant by the terms. Fair enough, right? Right – until it is discovered that you didn’t send an invoice until the start date in other placements. In fact, you didn’t even send one this time, until you discovered the candidate fell off the placement truck.
I know what you’re thinking. That’s interesting, but it’ll blow the placement if I bill before the start date. If that’s what you’re thinking, then you haven’t cleared the fee or really don’t believe you’ve earned it. There are many recruiters clients who routinely bill upon acceptance and get paid promptly even without it being provided in their fee schedule. They have the assumptive attitude you need to do this each time – they just assume their fee is fully earned.
They’re right too. Let’s look at it objectively. You’ve satisfied the six conditions precedent:
- Found a
- Ready,
- Willing,
- Able and
- Accepted
- Candidate.
The question is, are you now responsible for the conditions subsequent? (Restatement, Section 259) What if the client closes the rec? What if the client hires (or contracts with) someone other than your candidate? What if the client lowers the compensation or doesn’t deliver the perks, and the candidate doesn’t agree? What if, what if, what if? It’s exactly like the buyer’s and seller’s remorse problems in real estate.
Real estaters had a few more centuries than recruiters to figure out the answer: The real estate agent gets paid. The contract just shifts the risk of loss to the buyer (in our case, the client). This is logical because the agent has no control over the events occurring after purchase; there is nothing he or she can control. So the contract follows the natural idea that the buyer should bear the loss as long as the agent has fully performed.
Clowning clients, conning candidates, whatever. It really should be their problem because it really is!
Here’s the acceptance provision:
Our fee is earned when a candidate we refer to [name of client] accepts its offer to provide services either as an employee or in any other capacity.
You read it right. Just one sentence.
Then you need to use the following guarantee provision (a refund guarantee can’t work with the system):
In the event the candidate engaged to perform services by [name of client] does not provide services for 30 calendar days from the anticipated start date, we will replace said candidate at no additional charge. This guarantee will only apply if [name of client] pays our invoice for placement of the candidate in full within 10 calendar days from the invoice date.
Of course, we could clutter up the fee schedule with conditions galore, but it would only alienate your clients. It doesn’t take a C.P.C. to figure out that you could have hired a disappearing candidate, or that the candidate could have just changed his or her mind. The important thing is that the conditions precedent to your fee were satisfied. The fee is due. An instant falloff (between the acceptance and start) is now a condition subsequent. It can’t be a valid defense to your fee because the contract is completed. You have fully performed. You can enforce payment NOW.
If you’re still concerned about a counteroffer or other problem with your candidate, a PAA (position acceptance agreement) can be used. It should look official, be on plain paper (not letterhead – remember the rules of construction), and state the following:
POSITION ACCEPTANCE AGREEMENT
I, [name of candidate] hereby acknowledge and affirm that I have accepted the position of [title of position] with [name of client] at an annual starting compensation of $______ through [name of your business.]
I further covenant and agree to report for work on [start date.]
EXECUTED this ___ day of _______, 20__ at [name of city,] [name of state.]
[signature of candidate]
[printed name of candidate]
It doesn’t bind the candidate, but your secret’s safe with me.
Once you make this minor contractual and procedural change, you’ll notice three things:
- Clients won’t object. The change is minor to the fee schedule, so it’s unlikely to even raise an issue. If it does, you can always negotiate the arrangement on a case-by-case basis. This will be easier if you fully understand the logic and fairness of the arrangement.
- You’ll get paid faster. Most large fee-paying clients have accounting departments separate from hiring managers. So just accelerating the invoice expedites the transfer of money from the client to you.
- You’ll gain the leverage you deserve. When you have the money and the client still needs the candidate, you’re in a far better bargaining position than when the client has the money and you have a shot foot. Your fee schedule covers the instant falloff situation, it’s an enforceable business-to-business transaction, and the client needs to make his peace with you. Ni-i-i-ce.
If you’d like to increase your number of well-earned fees, we’d like to help. So we’re making the following offer:
Redraft your fee schedule in final form, including the acceptance and guarantee provisions. Then email it to jeff@placementlaw.com as a Word attachment to an email that states:
Subject: Fee Schedule Modification
Hi Jeff,
Please review the acceptance and guarantee provisions in the attached fee schedule, and reply with your opinion as follows:
- Acceptable.
- Acceptable with changes as noted.
- Unacceptable. Please resubmit.
If your opinion is that we can use the acceptance and guarantee provisions, I agree to:
- Immediately use the attached fee schedule with all new clients;
- Invoice each new client when an offer is accepted by the candidate; and
- Get paid when the candidate accepts. (Yes!)
I understand that your opinion is limited solely to the acceptance and guarantee provisions, and that the Law Offices of Jeffrey G. Allen accepts no responsibility for the validity or enforceability of our fee schedule.
Thank you.
Let us know how it’s working, and GOOD LUCK!