I look forward to reading your advice on the Fordyce Letter and I appreciate all the valuable information you provide. There are a number of questions I have in mind for which I have been given many different answers, depending on who I speak with. I would be most grateful to hear from an expert in the field.
The questions are as follows:
- What is the legal standard for when a recruiter can no longer collect a fee on a candidate submitted?
- Is there a legal time expiration?
- If, after a year, a company goes through the database and selects a candidate presented by a recruiter, does the company owe a fee?
- Should fee and guarantee agreements reflect a time frame?
- Are there exceptions such as when a company advertises and receives the same resume submitted by a recruiter?
Karen Sadowski / KMS Associates, Inc.
Here’s how Jeff sees it
I’m delighted that you’re learning from our JOC column! That’s what keeps us doing it.
“Candidate ownership” issues confuse lawyers too. So I’m going to address each of your five questions in order. Then I’ll show all of our readers how to test themselves to become even better at feefighting. Let’s go:
1. What is the legal standard for when a recruiter can no longer collect a fee on a candidate submitted?
Your question assumes there is no referral period as a term (provision) of the fee agreement (yours or the client’s). So our analysis will too.
There are actually three “legal standards” for a referral period:
Statute of Limitations
Originally, there was only the generic statute of limitations. This is the period of time the law allows the court system to be used to enforce rights. The statutory period varies from state to state, and also varies depending on whether a contract is oral or written.
Let’s say your fee schedule wasn’t signed by the client (the party to be charged).
If Virginia (your state) has jurisdiction over the dispute, the statutory period on this oral contract requires you to file your lawsuit within three years from the date of the breach of contract [Code of Virginia, Section 8.01-228(1)].
If that fee schedule has been signed by the client (and is therefore written), the Virginia statute of limitations is five years from the date of the breach of contract [(Code of Virginia, Section 8.01-228(2)]. Now you have almost twice as long to file an action under this analysis.
The statutes of limitations vary widely. With 50 states in play, always check with a local lawyer.
Why the difference in time? Because oral contracts rely on recollection — memory. The law recognizes that people forget. Your unsigned fee schedule is at best a confirmatory memorandum of the terms.
This is one of the many reasons why you want to get any fee agreement signed.
Custom and Usage
Fifty years ago, contingency-fee recruiting franchisors were looking for ways to attract more franchisees. Their only features were name recognition (for better or worse) and networking.
There was no answer to the prospect’s question, “What if I refer a candidate and the client hires him some other way?” That was a ve-r-r-ry expensive silence as the franchisor watched folks slither out the door during the crescendo close.
By using a referral period in their boilerplate fee schedules, franchisors had a credible answer. Something like, “Send an invoice!” That stopped folks from slithering and elicited the retort, “Where do I sign?”
Eventually one year became common — customary and usual. As franchisees left their franchises and recruiters copied each others’ fee schedules, this custom and usage even became an implied term of silent fee agreements. Although it wasn’t expressed in writing, it was implied.
The court implies this term figuring that the parties must have been thinking it applied. Why? Because it usually does, as everyone (except this fee-avoiding client) knows. For this reason, an employer lawyer tries to show the client either didn’t know the implied term or didn’t intend for it to apply. This is a matter of proof. It usually depends on the sophistication of the client, any course of dealings (experience) with recruiters, and knowledge of this common fee schedule term.
We don’t lose these because we produce witnesses and evidence of the custom and usage.
When an agreement is silent (as ours is here), the court will apply a reasonable term.
We just discussed implied terms (common-sense provisions that the parties would have included but didn’t) with regard to the one-year customary and usual referral period. A reasonable term may also be implied if a specific term is not proven to be what the parties intended.
What’s reasonable? That depends on the circumstances. What circumstances? Anything surrounding the transaction. Difficulty of filling the position, industry involved, extent of the communication between the parties, or any other relevant facts.
Those facts must be presented by your lawyer.
2. Is there a legal time expiration?
No. As you’ve just seen, there are three.
The statute of limitations imposes a prior time expiration by operation of law. The reasonable term theory imposes a subsequent time expiration by a judicial determination.
The one-year customary and usual period needs some explaining, though. It is a one-year “legal time expiration.” But it has a strict liability feature that collects placement fees like crazy.
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Strict liability means you don’t have to prove legal causation. So the “but for” nonsense (“But for my referral the candidate wouldn’t have been hired.”) doesn’t have to be mentioned. In fact, you don’t have to prove any hire “as a result of our effort.” You just have to prove:
- A referral of this candidate to the client, and
- A hire within one year.
No client-candidate game-playing, no personnel file sanitation, and no defenses related to another source of the hire.
The only downside is if the hire takes more than one year from the referral. Generally, the higher the level of the position, the longer the time from referral to hire. Foreign corporations often take much longer to hire as well.
Since the fee schedule is silent on the referral period, the customary and usual period will be one year from the date of referral. (A properly-drafted fee schedule can modify this to last communication regarding the candidate or anything else your headhunter’s heart desires.)
3. If after a company goes through the database and selects a candidate presented by a recruiter, does the company owe a fee?
Yes. (Companies always owe placement fees around here!)
In this case, there was no referral period (the fee schedule was silent), so the recruiter should rely on either the statute of limitations or the reasonable term.
Isn’t this fun, Karen. See how much different things look when you know placement law? How much dollar different? (Oh, right . . . back to your question.)
An employer lawyer might argue the one-year customary and usual period as a defense, but who’s listening? It doesn’t budge a judge or send a flurry through a jury Why? Because the employer lawyer can’t overcome the burden of proof.
How can he prove that the client’s human resourcer, or whomever, didn’t know something so obvious? It must be by a preponderance of the evidence. Preposterous! The judge thinks, “That’s your HR professional?”
As a practical matter, conservative employer defense litigators don’t go there. It loses cases — and therefore their big clients. Moreover, only two employer lawyers are aware of this defense (and I know who they are).
If one of them tries to use it, your lawyer says the following:
“(Name of client) waited until nobody was looking, stuck its hand in the cookie jar, stole the cookie, ate it, and now refuses to pay because it was stale.”
I got the brainstorm for that one in the middle of hyperventilating in court during a furious fee fight. I asked the judge to declare a recess, dashed downstairs to the snack bar, grabbed a package of cookies from the rack, dashed out, dashed back, slapped down all the change I had in my vest, ran upstairs back into the courtroom, and demonstrated the now-famous “Mrs. Field’s Five-Figure-Fee Collection Technique.”
Have your lawyer call me.
4. Should fee and guarantee agreements reflect a time frame?
Yes, but just know that there’ll be no sale if you’re outside the referral period. Again, the higher the position and the more foreign the corporation, the longer the time from referral to hire.
The contract will be construed against the maker because the maker (recruiter) was in the best position to protect himself in the drafting.
5. Are there exceptions such as when a company advertises and receives the same resume submitted by a recruiter?
This is a causation thing – as in “cause and effect.”
For all you need to know (and much more collection savvy), just
- Go to www.placementlaw.com.
- Click the Placement Fee Collection Quiz button on the bottom row.
- Download and print out the PFCQ.
- Take the PFCQ.
- Click the Answers to Placement Law Quizzes button on the bottom row.
- Correct your answers, and if necessary
- Click the flashing Jeff’s On Call! button on the website to e-mail me any questions you have
- This is a great way to know the law, make more placements, and GET PAID!
Thanks so much for asking, Karen. We’ve covered a lot here, and I hope it helps all.