Jeff’s On Call!: No Payment for Consultant Hires

This week’s inquiry comes from Floyd Prescott:

Jeff,

Over the years, I have learned much from viewing your column with bemused detachment, observing the predicaments “less savvy” recruiters have gotten themselves into through slipshod practices with unsavory clients. With 15 years of industry experience, I assumed I had seen everything and had the bases covered. Never had a client who refused to pay, until now. Your outstanding expertise is badly needed here and now.

My formerly best client of 13+ years with 60 some placements has hired a candidate I showed them as a consultant for about 6 months and has stated they don’t owe me any compensation for his services since no permanent placement occurred. I am working on finding a permanent replacement which I may or may not be able to do and they feel that fee, if earned again, should suffice for both. I have argued that would be two separate events to no avail. I have some suspicion that they are using this chump, who agreed to work at a monthly rate based on the full time base they originally offered him (half what he previously earned) before determining he could not sell his property and relo, and then plan to discard him when the project is done and declare the search over, owing me nothing. They are paying for his weekly travel and he seems happy with the arrangement so far. Both parties have talked about making him permanent but the relo situation does not seem resolvable in this real estate market. The client has said they will (conveniently?) not consider a long-term commuting scenario.

I do not have a current signed agreement and have operated on a handshake since 2000. I do have a signed agreement from 1998 when I was with another firm that says any employment results in a fee (which has always been my understanding going forward from there). I know I have been an idiot but they have always had searches that I work on contingency and they have always paid my 30 percent fee. I did not anticipate this situation arising.

There is other money on the table here that would be resolved in a few months. Client has shown some marginal behavior in the past but has overall been reasonable. They are highly respected in the community. I would consider declaring “Broken Arrow” and calling in artillery and air strikes on my position if it makes sense and forgo future business as I have a hard time giving them a pass on this.

You advice greatly appreciated.

Regards,

Floyd

Dear Floyd,

Thanks for bringing up the “un-employee defense” that so many tax-evading, fee-avoiding employers use.

I’ll show you how to get paid 30% in a few, but let’s do some analyzing first:

The most common trap is when a fee schedule is used and the wording specifically forecloses anything but regular, full-time employment.

Your 11-year handshake is actually better, since a recruiter’s fee schedule will be construed (interpreted) against the recruiter under the common (judge-made) law, and many codified (“black-letter” legislature-enacted) state laws. So defects (mistakes) and ambiguities (unclear words) are shots in the foot.

For those who (should and do) use written fee schedules, eliminate the following 10 words from them:

  1. Applicant
  2. Bonus
  3. Employee
  4. Employer
  5. Hire
  6. Job
  7. Payroll
  8. Position
  9. Salary
  10. Wages

Then use the following 10 words in them:

  1. Assignment
  2. Candidate
  3. Company
  4. Compensation
  5. Consultant
  6. Engage
  7. Independent
  8. Perform
  9. Project
  10. Services

Your fee schedule is your contract. It should be suitable for framing, and updated regularly when the statutes and cases change. We update at no charge on the ones we prepare because it’s that crucial to getting you paid.

Now, let’s get back to your handshake.

Without realizing it, the repetition of 60 placements and payment during that more than 13-year relationship created a contract. That’s right – an enforceable legal agreement. “How?” you ask? I answer “By custom and usage!

This is a way of leveraging an implied in fact contract (by the actions of the parties through placement-payment, placement-payment, etc.) into a consistent course of dealings under the same terms. This is sometimes analyzed as a quasi contract because the courts essentially forge contract terms from those party actions. The course of dealings is said to ripen into a contract.

This independent contractor (“consultant”) is a de facto (“in fact”) employee. Why? Because he walks and talks the same way. Their tax evasion is their business. But your taxable fee is ours.

How do you get it? Through the equitable remedy of a quantum meruit recovery. Quantum meruit is Latin Legalese for “the amount merited.” It’s based on the value of the services rendered (a placement).

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You billed 30% now, you consistently billed 30% before, and they consistently paid 30% before (again, the actions of the parties through placement-payment, placement-payment, etc.). The way the courts justify this is by finding unjust enrichment to the client by having obtained the benefit of your services (and the candidate’s) without paying for them.

Clients don’t pay bills they don’t owe, so you’re fine pegging the fee at 30%. Unfortunately you won’t also get your attorney’s fees and non-court costs in most states due to your handshake deal.

How did the value of this placement decrease? That’s not your problem. Once you present your prima facie (initial) case that includes the consistent course of dealings, the burden of proof will shift to the client in court to show the decreased value.

Of course, it can’t. Further, it sounds like they grossly underpaid this de facto employee. (Translation: Fast full five-figure fee.) You might even help the court figure out a comparable employee compensation for the purpose of computing the fee!

Should you make yet another placement for the same gig? Of course not! That’s just rewarding bad behavior.

Here’s how the conversation goes:

The deal is: Pay me a full fee for Placement Number One. Then we’ll talk about a “preferred client discount” for Placement Number Two. As with Placement Number One, you owe nothing until we’ve expended our expertise, time, and money and you’re so satisfied with our candidate that you hire him.

If that’s not acceptable to the client, you should contact your lawyer, and it’s “Pay up or else.”

We’ve helped a lot of recruiters with this one. You should be the first!

Thanks again for asking.

Jeff


If you have a legal question you’d like to have Jeff answer here on The Fordyce Letter, check out Jeff’s On Call! and submit your question.

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.

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1 Comment on “Jeff’s On Call!: No Payment for Consultant Hires

  1. I am new to the business and I must say this is the most important piece of information I have picked up. Thank you

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