The Payback Attack to Employee Payback Agreements

Jeff —

I’m really benefiting from your writing and thanks for taking time out of your busy schedule to answer my question.

I’m working with a candidate who accepted a position with a company that I didn’t submit him for. About a month later, this network engineer told me that the job was terrible and he is only doing network cleanup and documentation. Then he tells me that the agency that placed him made him sign a contract that stated that if he left the job before the three month guarantee period that he would need to pay the agency the lost fee.

This was a new one for me in my 18 year career – I’ve never heard this. Is it enforceable?

Regards,

David Cohen
Agency owner in NJ

Employee Payback Agreements

Hi David,

Great hearing from you! We enjoy contributing to your knowledge – and your 18-year success. Now we’ll be helping you place that candidate.

The contract he signed is known as an employee payback agreement (EPA). EPA’s can be written so they appear enforceable by an employer. We change that appearance by executing our PAYBACK ATTACK!

Legally, an EPA is a simple bilateral contract. That means each party is promising to do something in exchange for a return promise by the other. Since the employer doesn’t have to pay the placement fee and the employee doesn’t have to stay on the job, giving up those “rights” meets the legal requirement of consideration.

When no “payback attack” is used, the employer lawyer seeks to enforce the EPA he probably drafted. The opening salvo of a collection letter to the candidate rarely generates voluntary payment. Now the lawyer’s got to prove that his contract really works. Pressure builds from the supervisor with a depleted procurement budget. Pride and politics fuel the foolishness. This leads to an attempt to enforce the EPA.

Threats of EPA enforcement invite discrimination, wage, safety, workers’ compensation and other employment claims by the candidate. Since these are among claims that invoke the protective labor laws, the employee can’t be fired while they’re being pursued. The administrative proceedings cost the employee nothing, and they can be devastating to the employer. The probability of a claimant prevailing in these matters is high, since self-perpetuating government agencies must justify their existence.

So the protective labor laws are potent ammunition for an EPA’d employee. Only they don’t get you paid. This is because they take an otherwise placeable candidate off the job market. While the process drags on (and on), the candidate won’t want to leave and another employer won’t want to hire him.

The “payback attack” bypasses them entirely. It’s based on what we noted in the Employee Termination Handbook:

Where the parties’ bargaining power is not relatively equal at the time the agreement is executed, the courts have exercised their powers to void some or all of the provisions on the grounds that they are fundamentally unconscionable.

“Don’t Sign Don’t Eat”

This court power is used to construe (interpret) EPA’s as disfavored contracts. As employment agreements, they are suspiciously viewed as contracts of adhesion. Translation: “Don’t sign and you don’t eat.” The new employee is forced to adhere (agree) to the adhesive (onerous, non-negotiable) terms.

Since employment agreements are contracts, they’re subject (vulnerable) to the defenses (avoidance) of all contracts. Since they’re adhesive, those defenses are taken more seriously. The “payback attack” uses them preemptively.

The “payback attack,” takes the form of a fact-based letter from the candidate’s lawyer challenging the EPA. Your candidate writes a detailed explanation (including exact dates, names and titles of employer reps, and what occurred) under eight headings. This is given to his lawyer, and the letter is written.

Doing it this way saves the candidate legal fees by marshaling the facts, ensures that his lawyer uses the entire arsenal, and maximizes the attack.

The eight headings are:

  1. Mistake of Fact
  2. Mistake of Law
  3. Fraud (Intentional Misrepresentation)
  4. Negligent Misrepresentation
  5. Duress
  6. Undue Influence
  7. Waiver
  8. Unfair Business Practice

Here’s how you explain the headings to your candidate for his factual workup:

1. Mistake of Fact

Since any contract requires mutual assent (agreement) to the same terms, a “meeting of the minds” must occur. The parties must be thinking of the same surrounding facts and circumstances.

Did your candidate think he’d be recruited away? How about that the job specs would be changed so he had to commute twice as far? What about the discussed merit reviews that he thought would have salary increases?

No “meeting of the minds,” no contract.

2. Mistake of Law

This defense also goes to the issue of mutual assent, but asserts that either the law itself or its interpretation were misunderstood.

Undoubtedly, you’ve heard that “everyone is presumed to know the law” and “ignorance of the law is no excuse.” When it comes to employment agreements, don’t believe it.

What if the candidate thought the EPA was unenforceable because there was no promissory note requiring him to pay back the loan? Or what if he thought signing the EPA was a legal requirement so the employer could use it as a business write-off? Maybe that the employer wanted to legally bind the recruiter to a longer guarantee?

Whatever. You get the idea.

3. Fraud (Intentional Misrepresentation)

This is nothing more than a mistake of fact or a mistake of law caused by the employer. The candidate can state that the employer either waived some right or stated that the law didn’t protect it. Here are the fraud allegations we hear most frequently:

  • “It’s just a formality.”
  • “We never go after anyone if they leave.”
  • “Of course, it’s unenforceable.”

This issue in fraud cases is usually whether there was reasonable reliance on the representation. Easy to show with a disfavored EPA.

4. Negligent Misrepresentation

Was the workplace layout as promised? How about the training program? Did the job title fit the job description? Did the job description describe the job?

Reasonable reliance here too.

What’s reasonable reliance? Acceptance of the job offer.

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5. Duress

No doubt about it. Don’t sign and you don’t eat.

6. Undue Influence

Was the candidate advised to review the EPA with his lawyer? His accountant? Was he handed it for the first time on his start date and required to sign it as a condition of employment?

7. Waiver

Were all recruited employees – before and after the candidate was hired – required to sign EPA’s? The identical one? Why not?

8. Unfair Employment Practices

These are prohibited by catchall statutory (legislature-enacted) laws that vary from state to state.

The candidate’s lawyer should determine if any local state laws have been violated, and fit the facts into them. A violation of these laws raises the specter of the state attorney general swooping down on the employer.

This intimidates the intimidator. Big time.

EPA’s may be prima facie (on their face) enforceable. But the “payback attack” faces them down. A dispute over an EPA is framed as a referendum on the job. No self-respecting employer wants that.

The reason the attack is so successful is because employers who use them are bullies. They view this as a way to avoid the consequences of its mismanagement by forcing a disgruntled employee to “stay or pay.” That’s why it bothered you, David. That’s why it bothers judges too.

Employer lawyers are rendered defenseless against a “payback attack.” The EPA isn’t supposed to be challenged by the caged candidate. So when one fights back preemptively – hard and fast – the lawyer is stunned.

Why? Employer lawyers are basically administrators — “transactional” paper-pushers with a law degree. Nothing wrong with that. But they’re not built for embarrassing, politically incorrect, publicly viewed, news reported, financially risky moves. If an employer lawyer worked for you, he’d be a researcher.

So they do what bullies do best. They back down. We have two words in our office for the result: “A placement.”

If you’d been paid that other recruiter’s EPA placement fee, we’d be having a different conversation, though. The reason is contained in the title of Chapter 47 of The Placement Strategy Handbook (available for $32.50). That title is “The Employee Payback: Stay Back, Way Back!” (The PSH outsells all other recruiting aids combined. No surprise there.)

If you want to learn about other placement law issues,

1. Go to www.placementlaw.com.

2. Click the Placement Manager’s Law Quiz on the bottom row.

3. Take the PMLQ.

4. Click the Answers to Placement Law Quizzes button at the end of the bottom row.

5. Grade yourself.

Thanks for asking about EPA’s, David. Here’s hoping you go another 18 years without encountering one! But if you do, execute a PAYBACK ATTACK!

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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