Is That M&A You Smell? Quick Stake Your Fee Claim

ask-jeff4Hi Jeff,

Love your articles!

Standalone solo technical specialty recruiter with a dilemma I haven’t seen in my 12 years doing this.

Large global (euro) manufacturing company A enters the US and buys US company B (one of my clients) as a wholly owned subsidiary. Call it AB.

I had a fee agreement with company B and then a new fee agreement with the new company AB after the purchase.

One year later, global company A decides to buy similar US company C (also one of my clients) and merge it into the new US company AB. At this point, the government gets involved and says that it can’t do that unless they sell off some of the company AB assets, as it would otherwise be too large.

After a yearlong court battle, company A agrees and sold off 80% of what was the first company (B), keeping all the rest as the new company AB. The sold off assets become a new company D.

Is my contract still valid?

It was signed by a high level executive at the first company, AB. That executive went with the sold off company D.

The company AB did not change its name during this, and that name is on my contract.

Current AB corporate is saying my contract is not valid and won’t pay out for a placement because they didn’t approve my agreement. They did accept and interview the candidate at one of their manufacturing locations who was declined due to an internal promotion. Within 8 months they hired him at another location because “somebody knew him and worked with him before.” Therefore, I am not eligible to be paid.

My contract states that if the client hires the candidate or any reason, at any location, or affiliate within one year after last communication about the candidate,  the fee is owed.

Thanks, in advance, for your skills and expertise in this matter.

Kevin Little
KSL Recruiting LLC

Hey Kevin,

We love you too – and appreciate your appreciation!

The answer is, “It depends.” Depends on the legal relationship that was constructed in conjunction with the purchase.

The “acquisition mission” to get paid gets complicated for a third-party recruiter, so let’s get our worldwide webbers prepared:

Here’s how:

  1. Click to placementlaw.com.
  2. Click the Placement Fee Collection Quiz button at the beginning of the bottom row.
  3. Take the PFCQ.
  4. Click the Placement Law Language Quiz button in the middle of the bottom row.
  5. Take the PLLQ.
  6. Click the Answers to Placement Law Quizzes button at the end of the bottom row.
  7. Grade yourself on the PFCQ and PLLQ.
  8. Get 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 to 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 the moment you sniff a M&A (merger and/or acquisition). 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 email – 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.

“Acquisition mission” accomplished.

Best wishes for success, all!

Jeff

More than thirty-five years ago, Jeffrey G. Allen, J.D., C.P.C. turned a decade of recruiting and human resources management into the legal specialty of placement law. Since 1975, Jeff has collected more placement fees, litigated more trade secrets cases, and assisted more placement practitioners than anyone else. From individuals to multinational corporations in every phase of staffing, his name is synonymous with competent legal representation. Jeff holds four certifications in placement and is the author of 24 popular books in the career field, including bestsellers How to Turn an Interview into a Job, The Complete Q&A Job Interview Book and the revolutionary Instant Interviews. As the world?s leading placement lawyer, Jeff?s experience includes: Thirty-five years of law practice specializing in representation of staffing businesses and practitioners; Author of ?The Allen Law?--the only placement information trade secrets law in the United States; Expert witness on employment and placement matters; Recruiter and staffing service office manager; Human resources manager for major employers; Certified Personnel Consultant, Certified Placement Counselor, Certified Employment Specialist and Certified Search Specialist designations; Cofounder of the national Certified Search Specialist program; Special Advisor to the American Employment Association; General Counsel to the California Association of Personnel Consultants (honorary lifetime membership conferred); Founder and Director of the National Placement Law Center; Recipient of the Staffing Industry Lifetime Achievement Award; Advisor to national, regional and state trade associations on legal, ethics and legislative matters; Author of The Placement Strategy Handbook, Placement Management, The National Placement Law Center Fee Collection Guide and The Best of Jeff Allen, published by Search Research Institute exclusively for the staffing industry; and Producer of the EMPLAW Audio Series on employment law matters. Email him at jeff@placementlaw.com.

Topics