No Referral Period Specified? Here’s How You Collect

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Hi Jeff,

I hope things are well with you, and so appreciate the “Jeff’s On Call!” column. Ask Jeff

We’re in North Carolina and work primarily in the hospitality niche.

I wanted to reach out to ask you about an issue that has arisen.

We have a written agreement with a good client, a solid relationship, and have done a few deals with them over the years. The current agreement (our fee schedule) does not have a “candidate expiration” or, in other words, a fee tied to the candidate for a certain period of time between last communication.

Our HR contact emailed me this:

We have a candidate applying for a position that you introduced us to around six months ago. We are considering bringing her in for an interview. Since there is nothing in our agreement with you about how long a referral is good, I don’t want to have a problem if we hire her. She told us she had worked with you before, but doesn’t think you should be paid a fee if she is hired by us. Will you expect to be paid if we hire her?  What do you base it on?

I would like to get your perspective since it is a good client that we want to continue to do business with, but want to enforce our agreement for services.

Is there a rule of thumb about candidate ownership? What would you suggest?

Any insight would be greatly appreciated.

Thanks Jeff.

Wendy Singer
Singer & Associates, Inc. – Executive Search

Jeff Responds

Hi Wendy,

Thanks for the kind thoughts and this question. We can really help a lot of recruiters with the answer.

“Candidate ownership” issues are tricky. They confuse lawyers too, so this should help you and yours.

You have no written referral period as a term (provision) of the fee agreement (yours or the client’s). But there must be a referral period or the only time you’d have a contractual right to a placement fee would be when your sendout results in an instant hire.

How often does that happen?

3 Ways to Get Paid

There are three basic ways a “delayed placement” invokes liability for a fee:

1. 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 in many states depending on whether a contract is oral or written. (Often longer if it is written.)

If North Carolina (your state) has jurisdiction over the dispute, the statutory period on either a written or oral contract requires you to file your lawsuit within three years from the date of the breach of contract (NC Gen Stat, Section 1-46).

Statutes of limitations vary widely. With 50 states in play, always check with a local lawyer.

Why are the statutes of limitations often longer when the contract is written? 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.

2. 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.

3. Reasonable Term

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.

 

 

So, 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.

Some Explaining of Customary and Usual

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.

Strict liability means you don’t have to prove legal causation. Literally, you don’t have to prove your referral caused the hire.

 

In fact, you don’t even have to prove any hire “as a result of our effort.” You just have to prove:

 

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  1. A referral of this candidate to the client, and
  2.  hire within one year.

 

This is why we recommend a written referral period in your fee agreement. It reduces client-candidate game-playing, personnel file sanitation, and legal defenses related to another source of the hire.

 

The only downside is if the hire takes longer than the referral period. 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.

 

One Year From Date of Referral

Since your fee schedule is silent on the referral period, the customary and usual period will probably 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.)

 

Much money in written referral periods.

 

In this case, you had no referral period (the fee schedule was silent), so you’re left to rely on either the statute of limitations or the reasonable term.

Of course, there’ll be no sale in court if you’re outside the written 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 (interpreted) against the maker (recruiter) because the maker (recruiter) was in the best position to protect himself in the drafting. If you’re signing the client’s placement service agreement (PSA), the contract (PSA) will be construed (interpreted) against the maker (client).

 

For more on this (and much more collection savvy), just

 

  1. Go to www.placementlaw.com.
  2. Click the Placement Fee Collection Quiz button on the bottom row.
  3. Download and print out the PFCQ.
  4. Take the PFCQ.
  5. Click the Placement Law Language Quiz button on the bottom row.
  6. Take the PLLQ.
  7. Click the Answers to Placement Law Quizzes button on the bottom row.
  8. Correct your answers.

 

This is a great way to know the law, make more placements, and GET PAID!

 

Thanks so much for asking, Wendy. We’ve covered a lot here, and I hope it helps all.

Best always,

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.

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