WHEN DOES YOUR CONTINGENCY-FEE CONTRACT END?
Recruiting from a former “client.” Pursuing a fee for a delayed hire. Defending against the claim of a bogus candidate. The outcome of these and many other situations depends on when your contingency-fee contract ends.
This complicated area is the reason many law students never become lawyers. In this PTL, I’ll try to simplify it as much as possible.
Let’s take the four basic contingency-fee contracts and see how they’re terminated:
1. UNSIGNED FEE SCHEDULE WITH NO TERMINATION PROVISION
Unless your office is in Massachusetts or you place there, your unsigned fee schedule is generally enforceable. (You must have a signed fee schedule if you or the employer are in Massachusetts. Cantell v. Hill Holliday Connors Cosmopulos, Inc., 55 MassApp 550, 772 NE2d 1078. )
An unsigned fee schedule is the equivalent of a “confirmatory memorandum” of an oral agreement. If you can prove that it was received and accepted “expressly” (by words) or “impliedly” (by conduct), it is legally binding.
The good news is that you usually can’t. Your computer telling you an email was received proves nothing. Your fax machine’s verification is equally useless. An overnight-mail employer-signed receipt doesn’t prove what was in the envelope. An employer-signed certified mail return receipt doesn’t either.
So if there was a “contract” at all, the employer won’t be able to prove it without your help. Legally there is a failure of proof as to contract formation.
Change the facts (such as with a return email that acknowledges and accepts the terms), and there is sufficient proof of contract formation. The court will then move on to the sub-issue of no termination provision.
A court will find that the contract has been terminated. There are two ways:
First, it may be found that the contract is “terminable at will.” The logic is that if you and the employer wanted to have a “term” (fixed-duration) deal, you would have written it into the contract. There are court decisions in every jurisdiction that support this analysis. So the contract automatically terminated by you wanting to recruit from the employer.
Second, it may be found that a “reasonable term” existed for the termination of the contract. Reasonable means according to the circumstances in the discretion of the court.
The classic contingency-fee example is a referral period of one year. A court will usually rule that the contract remains in force for that period (or that it is a “post-termination covenant”) protecting the expectancy of the recruiter to get paid for a hire within the period. For that reason the court might also impose an implied “off limits” period of one year in the interest of fairness to the employer.
Court decisions in every jurisdiction can be cited that support either view, so the particular facts of the case must be interpreted. Generally, if there are no outstanding issues with performance by you or the employer, the contract is deemed “fully executed” (completed) and is “terminable at will.”
2. UNSIGNED FEE SCHEDULE WITH TERMINATION PROVISION
The same “contract formation” issues apply that we discussed in Item 1.
Assuming that a binding contract exists, the specific wording will apply. If one doesn’t exist, there is no termination provision to enforce.
3. SIGNED FEE SCHEDULE WITH NO TERMINATION PROVISION
Logically, there’s no difference between a verifiably accepted fee schedule and a signed one, but legally there is.
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That is because the common (original judge-made) law evolved into a uniform rule (“codified” into statutes in most states) that a signed contract can only be modified by a subsequent signed document. This is a perfect example of common law. It makes common sense. Otherwise, everyone who didn’t want to honor a deal would say it was orally changed. Oral contracts (including unsigned fee schedules) can be modified orally.
If you have a signed fee schedule with no “term” (automatic termination date), an employer can credibly argue that it remains in force until either party terminates it by delivering a “signed writing” to the other.
That is why it is common in fee disputes for employer lawyers to write letters terminating the contract they allege doesn’t exist. Fee-avoiders don’t want to pay subsequent fees.
The lesson here is that if you’re going to use a former “client” as a source, write a letter (containing your signature) terminating a signed fee agreement.
4. SIGNED FEE SCHEDULE WITH TERMINATION PROVISION
If there is a valid written contract, virtually any clearly defined termination provision will be enforceable.
However, even in the case of a clear termination provision, there’s an argument that a signed fee schedule isn’t a contract. Since neither party is bound to perform any activity, it can be viewed as merely an “agreement to agree” if a placement occurs.
Following that reasoning, neither party is under any obligation to terminate the agreement. The problem is that a judge might not reason it that way and rule against you.
Finally, if the provision is ambiguous, it will be construed against the maker. Let’s say an employer’s PSA (placement service agreement) states: “This agreement may be terminated by either party upon notice to the other.” There’s nothing that requires written notice (as the law would otherwise require), and no advance notice necessary prior to the termination (so the other party has no time to renegotiate or cover any losses). The “latent ambiguity” would be construed against the employer.
Simply calling the employer and telling someone you are terminating the PSA will allow you to start recruiting from the employer on the next call.
For more on this subject, read Chapters 62 and 113 in Placement Management,* entitled “How Long Must You Wait to Recruit From a Former Client” and “How Your Fee Schedule Endears You to Employers.”
Jeffrey G. Allen, JD, CPC, turned a decade of recruiting and human resources management into the legal specialty of placement law. For over 32 years, Jeff has collected more placement fees, litigated more trade-secrets cases, and assisted more search and 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 many best-selling books in the career field. He can be reached at Law Offices of Jeffrey G. Allen, 10401 Venice Blvd., Suite 106, Los Angeles, CA 90034; (310) 559-6000; firstname.lastname@example.org. The Placement Strategy Handbook and other books on search and placement can be purchased at www.searchresearchinstitute.com.