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Thank you for helping those in the recruiting industry understand our rights under this evolving area of law I read your column weekly and can?t find this advice anywhere else on the web.
I recently worked for a recruiting firm and worked splits with outside recruiters. When I left my last firm I compiled a list of candidates in play and worked to place them. Five months later one of the candidates was placed which was a split with an outside recruiter. Without my consent my former firm signed a unilateral waiver from the outside recruiter to release the right to payment for us to collect. Do I have standing to sue the outside recruiter in court?
Standing, Privity and Unjust Enrichment
Thanks for noticing!
Yes – There’s nothing like the “Jeff’s On Call!” column anywhere else on the placement planet. I’m honored to share my recruiter/HR manager/placement lawyer/bestselling career author/30-year “Placements and The Law” columnist experience in this unique one-on-one format.
The response to the JOC’s has been amazing. Through it, I look forward to continuing to help as many recruiters as possible.
As you know from reading past JOC’s, split-fee arrangements can be either terrific or terrible. Terrific if the client recruiter honors his commitment. Terrible if he doesn’t and you didn’t use our Recruiter Split-Fee Agreement. (I’ll show new readers how to get it for the cost of a few clicks in a minute.)
Your inquiry raises five sophisticated placement law issues we haven’t addressed before. Our readers should archive this reply, since the novel legal theories can be leveraged into many successful fee collections.
I’ll address the issues as they would logically be raised in litigation:
Issue 1. Standing
Standing means the capacity (right) to be the plaintiff in a lawsuit. It’s a shorthand way of saying the legal phrase standing to sue.
If someone owes your business a placement fee, can the accountant down the hall file a lawsuit to collect it? Of course not. The accountant lacks standing.
But why? Because it’s none of his business. You’re in a dispute arising out of a contract – a breach of contract dispute. The accountant is not one of the contracting parties. He is a stranger to the contract. Ergo, no standing.
Are you sitting down, Debra? I hope so, because you have what I call a “sitting” issue.
Sitting, because by being creative, we’ll get you standing after all.
So – On to Verticalville!
Issue 2. Privity of Contract
Any party to a contract has standing. That’s because they’re in privity of contract. They have a legally binding (enforceable) agreement.
But what about your sitch?
The authoritative treatise American Jurisprudence defines privity of contract as “A material interest in the performance of a contract by one who did not join in the making of the contract.” (17 AmJur2d Contr 297)
AmJur isn’t merely a legal dictionary. It’s a legal encyclopedia like no other. AmJur contains a thorough review of every reported case ever decided in the United States with the official legal citation of every one. So that definition is backed up with legal authority in the form of citable precedent.
It sounds like your former employer was the other contracting party in the deal. For most lawyers, that would mean you only have rights against your employer. Lawyers reflexively think an employee has no standing to enforce an employer’s contract. As the AmJur definition illustrates, this is clearly not the case.
If you file a lawsuit against the client recruiter, the earliest move would be to serve you with a pre-trial motion to dismiss or similar pleading — a procedural device designed to stop you from pursuing the lawsuit because you’re not in privity of contract (and therefore lack standing to sue).
But there are loads of federal and state cases analyzing standing in AmJur. Your lawyer will not know them (and probably the client recruiter’s won’t either). Visit your local law library and photocopy the AmJur citations for your lawyer. If she budges the judge with them, you’ll be allowed to maintain an action.
That’ll get you from sitting to standing.
Welcome to Verticalville!
We’ve passed “Go.” Now you can walk from the two procedural issues to the three substantive ones.
Issue 3. Waiver
A waiver is “the voluntary relinquishment of a known right.” (50 ALR2d 626)
Let’s assume there is no written split-fee agreement (crazy, but probable until we started giving away our SFA).
The argument here is that you were the one who had to waive the right to the split fee, because:
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Explore the Role of Incentives in Performance Management
- It was your candidate, and
- It was your commission being waived.
You can be very convincing with this position, because your ex has a fiduciary duty to you to collect its fees so you get your cut. Maybe your ex could only waive its right to the “house amount” (the cash-in less your commish). It makes for some ve-r-r-ry interesting (read: goofy) responses from the client recruiter.
You apparently continued to work on the placement after you left with the knowledge of your ex. If that’s the case, the waiver was impliedly revoked. Again, a waiver is “the voluntary relinquishment of a known right.” Now, the relinquishment of the right to object to you pursuing the placement!
This is technically called an implied (the full phrase being an implied-in-fact) waiver. No words needed to be spoken or written. Your ex waived the right by its conduct – silence when a known right to object existed.
Pretty nifty, ay?
So we’ve gone from sitting to standing, and now — you’re gettin’ rhythm! Stay right there Debra. I just punched the jukebox for another rocker.
Issue 4. Implied-In-Fact Contract
Same beat, different tune. So same dance.
People agree without speaking or writing all the time. Virtually every living creature does this, and humans are no exception. The only diff is that we call it contract formation when the parties are serious. That’s what that whole consideration idea is supposed to be about – seriousness.
You formed an implied (implied-in-fact) contract with the client recruiter. This is because the client recruiter acted as though there was a split-fee deal with you.
Whoa! The client recruiter says it thought you were just trying to lower the jobless rate. Or that you participated in your former employer’s waiver. Whatever.
We follow the objective theory of contracts in the free world. That means someone’s secret thoughts don’t have anything to do with enforceability. They must be communicated to the promisee (the one receiving the implied promise of the split).
So Debra, if it wasn’t communicated to you that there was no split-fee deal, objectively there was. Otherwise, why would you be continuing to close that deal?
The thing that makes one want to just get up and boogie here is that this bypasses your ex entirely! Its waiver (Issue 3) is consistent with this, so why should your ex even care?
Can it be? Your ex has no standing? What a hoot!
Issue 5. Unjust Enrichment
With the first four issues, we’ve been analyzing this as a contract dispute. That’s because breach of contract is a classic legal remedy.
But you can also give the judge or jury the basis for an equitable remedy.
Equitable remedies are the ones that recruiters usually want because equitable relief is meted out by courts in the interest of fairness. Here, the judge or jury would be asked to give you a commission based on the equitable remedy (fairness theory) of unjust enrichment.
Your pitch is: “The client recruiter is being unjustly enriched by retaining the full fee when the deal was to split it equally with me.”
The problem with equitable remedies for recruiters is that they require really good lawyers to pursue. If you can’t budge a judge or send a flurry through a jury, you shouldn’t be representing a recruiter on an equity case. Courts have virtually total discretion as a matter of conscience. Tears must dampen the pleadings.
There’s another very compelling issue here that could invoke equitable relief. It appears that no consideration (money or anything else of value) was paid to your former employer in exchange for the waiver (the promise not to pursue the split fee).
That means ipso facto (Latin for “Duh!”) the client recruiter received a windfall which it was not entitled to. And “not entitled to” is the precise definition of unjust enrichment!
Debra, I truly hope this helps you and everyone else navigate through the split-fee matrix that so often arises.
Will this work for you? I don’t know enough from your short inquiry, and we’re not representing you. But that’s my take.
Now, everyone within the sound of my voice must promise me the following:
YOU WILL NOT SPLIT A FEE WITH ANYONE UNLESS YOU HAVE A WRITTEN, ENFORCEABLE SPLIT-FEE AGREEMENT!
Get Jeff’s Split-Fee Agreement
No excuses. Just:
- Say, “I solemnly promise to never do a split fee with anyone unless I have a written, enforceable SFA!”
- Go to www.placementlaw.com,
- Click the red JEFF’S ON CALL! button.
- Type Recruiter Split-Fee Agreement in the Subject field.
- Click Send.
I’ll reply with the SFA.
May this result in many more split-fee placements and split-fee payments!