Promissory Estoppel: The Way You Get Paid When the Client Changes Things

Hi Jeff,

I have learned a great deal from your “Jeff’s On Call!” column and also from your National Placement Law Center Fee Collection Guide. The column is certainly a place where rookies and seasoned veterans alike can get useful tips for the search industry.

I am a veteran recruiter with over 20 years experience. I have done both retained and contingency search.

We have finished an extensive (3+ month) contingency search on an exclusive basis. During the search, the client sent names for us to screen and recruit. Of course one of these candidates landed the position after we screened, recruited, referred, and set up the initial interview. The client has offered to pay only a partial fee since they sent us the name of the candidate.

Unfortunately, I believe this will end up being hashed out in court. Will it matter what the reason is for the sending of the names to our firm? What legal theories does this case center on?

Thank you for your insight and any thoughts you may have on this controversy.

William N. Olson

Jeff Responds

Hi William,

Great hearing from you and that you’re learning much.

National placement law center bookThanks for the unsolicited testimonial about The National Placement Law Center Fee Collection Guide (with Case Citations).

The Fee Collection Guide is my favorite of the 25 books I’ve written. Some are worldwide bestsellers for jobseekers, but the Fee Collection Guide is the headhunter’s blowgun. Over the past 25 years, that killer-biller has probably helped collect tens of millions in well-earned placement fees.

The other must-have for you and your recruiter relatives is Contract as Promise, by Harvard Law Professor Charles Fried. It’s brilliant, and just what you need to prevent an employer lawyer from turning you into a “but for buffoon.”

Here’s why.

Finder Fee Fight

Most JOC collection inquiries aren’t about placement fees at all! They’re about finder’s fees. That’s because the feefight is almost always about the find. Sometimes it’s headhunter hernias over showing that the find caused the hire. Other times it’s referral periods expressed (by a contract) or implied (by custom and usage) showing strict liability regardless of the cause of the hire.

Those are finder’s fee issues. Yours is a post-find placement fee deal.

Reliance Damages

This gives me the opportunity to share the placement fee-getter we introduce in Chapter 25 of the Fee Collection Guide entitled “A Simplified Legal Theory to Win Fee Collection Cases.” It’s helped many recruiters collect true post-find placement fees through the little-known concept of reliance damages.

That five-figure fee-getter theory is known as promissory estoppel. Every contingency fee recruiter within the sound of my voice must know it well to collect true placement fees.

Promissory estoppel was developed by legal scholars in the Restatement of Contracts, Section 90. It is a substitute for the consideration that merges with an offer and an acceptance to form the legally-enforceable oral modification to the original written fee agreement. Conceptually, it’s a mini-contract that alters the original terms of the contract.

Contract Consideration

So far, so good. But if it’s a mini-contract, what about the necessity of consideration to support it? When I ask about the definition of consideration in a workshop, the answer is automatically “Money.” But there’s no money being paid by the employer, and you’re sure not paying anything to make the placement. So that’s not it.

Consideration refers to a benefit or detriment that is given in exchange for a promise. The employer’s promise to pay the fee. The benefit is your assistance in placing a client-referred candidate. The detriment is not working on other searches or not placing the candidate elsewhere.

As Professor Fried masterfully explains in Contract as Promise, the purpose of consideration is merely to show that the parties intended to be bound. That they established an enforceable relationship of rights and liabilities. This ripens an unenforceable mini-agreement into an enforceable mini-contract.

Promissory Estoppel

So the substitute for consideration known as promissory estoppel arises when:

1. The employer makes a promise.

Here, “If we give you a lead to ‘screen, recruit, refer, and set up the initial interview with’ (using your words, William), then hire that person, we’ll pay you the agreed fee.” (No, the reason for providing the lead shouldn’t matter if the implied or expressed promise to pay was made.)

2. You justifiably rely on that promise.

Justifiable reliance (acting on good-faith belief) by fully doing what the employer wanted with the reasonable expectancy of getting paid pursuant to the underlying original contract. Those activities you did (as you’ll soon see) can be clearly documented. They are evidence of complete performance of the conditions precedent (requirements) to make the promise (of payment) enforceable.

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3. The employer is estopped (legally stopped) from breaching the promise.

4. The court can enforce the promise to uphold your reasonable expectancy.

That means an order of the court to tender payment in full.

Failure Of Consideration

This is not a traditional contractual analysis, so be sure to share this JOC, the Fee Collection Guide, and Contract as Promise with your lawyer. You didn’t find the candidate so under strict contract principles pursuant to your original fee agreement, there was no contract formed. That’s because there was otherwise a failure of consideration (bargained-for benefit – a find) received by the client. Promissory estoppel is being substituted for the find as a matter of fairness.

That’s why you wrote me, William. This treatment by the “client” is unfair. Here it led you on throughout the undoubtedly extended recruiting and hiring process. Didn’t it waive (relinquish) its right to insist on literal performance of the original contract? Wasn’t this a waiver by conduct consistent with the course of dealings between the parties?

You must be able to prove that you fully performed all terms (provisions) and conditions (other requirements) to getting paid, just as with any contract claim. If not, the terms must be waived or the conditions must be excused. Simply stated, this means the employer intentionally didn’t require compliance with them.

A typical example of waiver is the “only through HR” business. If the employer is sloppy and lets you communicate with hiring managers, you’re fine. It waived its right to insist on literal performance of the original contract. It is then estopped (again, legally stopped) from asserting that right.

What did you do wrong, William?

See what I mean?

In these cases, it’s imperative to show the detrimental reliance on the promise. That’s how a court can compute the amount of your reliance damages.

Those damages are organized by using our unique Pre-Placement Activities Worksheet.

To get it,

1. Say, “Charles Fried, friend in need!”
2. Go to www.placementlaw.com.
3. Click the red JEFF’S ON CALL! button.
4. Type Pre-Placement Activities Worksheet in the Subject field.
5. Click Send.

I’ll reply with the worksheet.

The worksheet information should be itemized in the ve-r-r-y tough letter your lawyer writes to that “un-client”. Let’s get you paid for all that time and effort!

Best wishes for every success!

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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