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Fees, Jeff's On Call!

A Handshake Won’t Help When You Have A Split-Fee Dispute


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Jeff:

I love reading “Jeff’s On Call” in TFL and you have been very helpful in the past. I’ve got a new situation that’s come up and could use your expertise, so here goes:

I’ve never had any problems in the past working splits with other fellow recruiters from other companies up until today.

I entered an agreement with a recruiter for a split and have an email trail of our specific arrangement. She assured me she had terms in place with a client that she had a relationship with. I never thought to question the recruiter’s terms with this supposed client. In addition, it has been my experience that recruiters do not like to share their client company terms with other recruiters, often this is done in good faith.

I sent a candidate and references for immediate consideration thinking this would be an easy referral, just like all the others. My paper trail leads to the split recruiter and not to the company directly.

Since I was the referring recruiter I have had zero contact with the client company. My contact was primarily with the candidate and the other recruiter who provided updates from the client.

As it stands, a delay ensued and my candidate who did well on all her interviews decided to call and ask the hiring manager what the delay was in her getting an offer. She was told the fee was causing a problem as they either did not want, or could not pay the fee. This despite the fact that they had originally agreed to pay the recruiter they were working with (apparently they had a verbal agreement on terms).

The Problem Begins

Candidate then proceeded to tell the client she would pay the fee because she wanted the job. At that point an offer was extended and accepted.

Today the recruiter who I had made the arrangement to split this with, told me this horrible news, and indicated she did not want to get in the way of candidate getting a job, and that she felt uncomfortable collecting a fee from the candidate. Having never collected a fee from a candidate and feeling this is simply wrong on the side of the client, I am not sure what to do.

Can you tell me if I have any legal recourse (in the state of Florida) against this client to collect my referral split fee? I would love to hear your take on this. It goes without saying I will be much more thorough in the future should I consider any kind of split.

Sincerely,

Helen Stefan

Senior Recruiter

Jeff’s Advice

Hi Helen,

Great to hear from you!

The inviolate rule for every recruiter on the placement planet is:

Do not split a fee with anyone unless you have a written, enforceable split-fee agreement!

Before we get into the split-fee business, let’s dispose of your question about charging the canny candidate.

Unlike the business-to-business business that you’re in, where you do employer-pay-fee (EPF) search, an applicant-pay-fee (APF) relationship is a consumer transaction. B-i-i-i-g difference.

A legal APF contract looks like a credit card application. Compliance with the statutory notices, truth-in-lending requirements, and mandatory statements are heavily regulated by the federal government under the Fair Credit Reporting Act (15 USC 1681, et seq.) and other federal and state laws. The forms often have to be submitted to a governmental agency for approval prior to their use. Many of the states also require a license to place on an APF basis.

So that’s out.

Doing Splits Right

Now let’s move on to doing splits the right way.

A written split-fee agreement (SFA) can geometrically increase your contacts and leverage your production. However, too few SFA’s are in writing, and disputes over them are far too common. Ergo your problem here.

As the “candidate recruiter” Helen, you’re the one in the hotseat, because it’s invariably the “client recruiter” (account executive) who doesn’t want to pay the half that’s owed.

There are three basic ways this arises:

1. The “client recruiter” has not been paid.

The candidate recruiter has a cause of action (legal claim) for breach of contract against the client recruiter. A properly-drafted SFA will include the terms of payment like:

  • Upon the start date.
  • Ten days after the start date.
  • Pursuant to the fee schedule term, or;
  • Upon expiration of the guarantee period.

It will also include payment of attorney’s fees, costs of arbitration, entry of judgment costs, and other necessary and proper expenses to the prevailing recruiter.

It is imperative for the candidate recruiter to include disclosure requirements on the part of the client recruiter. Otherwise, the candidate recruiter is on the outside looking in. Serious legal issues can arise if the candidate recruiter contacts the client directly or (actually or apparently) interferes with the candidate’s employment. (That’s why you can’t intervene here, Helen.)

The candidate recruiter is in privity of contract (a contractual relationship) with the client recruiter, and the client recruiter is in privity of contract with the client. The candidate recruiter has derivative rights and usually is subject to the terms and conditions of the underlying fee schedule.

Therefore, the SFA should be drafted so the client recruiter pays regardless of whether the client does. This unconditional term places the pressure where it belongs, since the candidate recruiter has fully performed by recruiting and referring the candidate.

Collection should be the client recruiter’s problem.

2. The “client recruiter” has been paid, but refuses to pay the candidate recruiter.

There’s a simple way to construct an SFA that will protect the candidate recruiter. Just define exactly what constitutes performance by the candidate recruiter. Definitions include:

  • Identifying the candidate.
  • Recruiting the candidate (for a specific position, with a specific client, etc.).
  • Coordinating the client interview.
  • Assisting with hand-holding, on-site interviews, reference checking, relocation, extending offers, etc.).

3. The “client recruiter” has paid the “candidate recruiter” who refuses to return the payment.

These usually involve a falloff (where the candidate leaves before the guarantee period expires), and the client is demanding a replacement or refund of the fee. However, most cases revolve around some waiver by the client recruiter of the fee schedule terms. Usually this is either granting a refund where only a replacement is promised, or an extension of the guarantee term.

The candidate recruiter is not bound by these modifications unless he specifically consents. The client recruiter owes the candidate recruiter the full split.

Get Jeff’s Split-Fee Agreement

In appreciation for you sharing this mess, I’m going to send everyone within the sound of my voice our Recruiter Split-Fee Agreement. It’s too long to include in a JOC column, so:

  1. Say, “I solemnly promise to never do a split fee with anyone unless I have a written, enforceable SFA!”
  2. Go to www.placementlaw.com
  3. Click the red JEFF’S ON CALL! Button
  4. Type Recruiter Split-Fee Agreement in the Subject field
  5. Click Send.
  6. I’ll reply with the SFA.

Now make more split-fee placements and get more split-fee payments!

Thanks for asking, Helen. May you never have anything like this happen again!

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.