This week’s inquiry comes from Floyd Prescott:

Jeff,

Over the years, I have learned much from viewing your column with bemused detachment, observing the predicaments “less savvy” recruiters have gotten themselves into through slipshod practices with unsavory clients. With 15 years of industry experience, I assumed I had seen everything and had the bases covered. Never had a client who refused to pay, until now. Your outstanding expertise is badly needed here and now.

My formerly best client of 13+ years with 60 some placements has hired a candidate I showed them as a consultant for about 6 months and has stated they don’t owe me any compensation for his services since no permanent placement occurred. I am working on finding a permanent replacement which I may or may not be able to do and they feel that fee, if earned again, should suffice for both. I have argued that would be two separate events to no avail. I have some suspicion that they are using this chump, who agreed to work at a monthly rate based on the full time base they originally offered him (half what he previously earned) before determining he could not sell his property and relo, and then plan to discard him when the project is done and declare the search over, owing me nothing. They are paying for his weekly travel and he seems happy with the arrangement so far. Both parties have talked about making him permanent but the relo situation does not seem resolvable in this real estate market. The client has said they will (conveniently?) not consider a long-term commuting scenario.

I do not have a current signed agreement and have operated on a handshake since 2000. I do have a signed agreement from 1998 when I was with another firm that says any employment results in a fee (which has always been my understanding going forward from there). I know I have been an idiot but they have always had searches that I work on contingency and they have always paid my 30 percent fee. I did not anticipate this situation arising.

There is other money on the table here that would be resolved in a few months. Client has shown some marginal behavior in the past but has overall been reasonable. They are highly respected in the community. I would consider declaring “Broken Arrow” and calling in artillery and air strikes on my position if it makes sense and forgo future business as I have a hard time giving them a pass on this.

You advice greatly appreciated.

Regards,

Floyd

Dear Floyd,

Thanks for bringing up the “un-employee defense” that so many tax-evading, fee-avoiding employers use.

I’ll show you how to get paid 30% in a few, but let’s do some analyzing first:

The most common trap is when a fee schedule is used and the wording specifically forecloses anything but regular, full-time employment.

Your 11-year handshake is actually better, since a recruiter’s fee schedule will be construed (interpreted) against the recruiter under the common (judge-made) law, and many codified (“black-letter” legislature-enacted) state laws. So defects (mistakes) and ambiguities (unclear words) are shots in the foot.

For those who (should and do) use written fee schedules, eliminate the following 10 words from them:

1. Applicant
2. Bonus
3. Employee
4. Employer
5. Hire
6. Job
7. Payroll
8. Position
9. Salary
10. Wages

Then use the following 10 words in them:

1. Assignment
2. Candidate
3. Company
4. Compensation
5. Consultant
6. Engage
7. Independent
8. Perform
9. Project
10. Services

Your fee schedule is your contract. It should be suitable for framing, and updated regularly when the statutes and cases change. We update at no charge on the ones we prepare because it’s that crucial to getting you paid.

Now, let’s get back to your handshake.

Without realizing it, the repetition of 60 placements and payment during that more than 13-year relationship created a contract. That’s right – an enforceable legal agreement. “How?” you ask? I answer “By custom and usage!”

This is a way of leveraging an implied in fact contract (by the actions of the parties through placement-payment, placement-payment, etc.) into a consistent course of dealings under the same terms. This is sometimes analyzed as a quasi contract because the courts essentially forge contract terms from those party actions. The course of dealings is said to ripen into a contract.

This independent contractor (“consultant”) is a de facto (“in fact”) employee. Why? Because he walks and talks the same way. Their tax evasion is their business. But your taxable fee is ours.

How do you get it? Through the equitable remedy of a quantum meruit recovery. Quantum meruit is Latin Legalese for “the amount merited.” It’s based on the value of the services rendered (a placement).

You billed 30% now, you consistently billed 30% before, and they consistently paid 30% before (again, the actions of the parties through placement-payment, placement-payment, etc.). The way the courts justify this is by finding unjust enrichment to the client by having obtained the benefit of your services (and the candidate’s) without paying for them.

Clients don’t pay bills they don’t owe, so you’re fine pegging the fee at 30%. Unfortunately you won’t also get your attorney’s fees and non-court costs in most states due to your handshake deal.

How did the value of this placement decrease? That’s not your problem. Once you present your prima facie (initial) case that includes the consistent course of dealings, the burden of proof will shift to the client in court to show the decreased value.

Of course, it can’t. Further, it sounds like they grossly underpaid this de facto employee. (Translation: Fast full five-figure fee.) You might even help the court figure out a comparable employee compensation for the purpose of computing the fee!

Should you make yet another placement for the same gig? Of course not! That’s just rewarding bad behavior.

Here’s how the conversation goes:

The deal is: Pay me a full fee for Placement Number One. Then we’ll talk about a “preferred client discount” for Placement Number Two. As with Placement Number One, you owe nothing until we’ve expended our expertise, time, and money and you’re so satisfied with our candidate that you hire him.

If that’s not acceptable to the client, you should contact your lawyer, and it’s “Pay up or else.”

We’ve helped a lot of recruiters with this one. You should be the first!

Thanks again for asking.

Jeff

If you have a legal question you’d like to have Jeff answer here on The Fordyce Letter, check out Jeff’s On Call! and submit your question.

Now if you have ever been divorced or have spent much of your life putting numbers in little boxes, you know the mind set du jour of someone who is newly divorced and doesn’t like what they do for a living, either. I remember saying something like, “That’s a great idea, now if you will excuse me, I am on the phone.” I kissed my life as a bean counter goodbye (as soon as I got plans firmed up for the evening), picked up my purse, and headed to the nearest employment agency.

The Old Employment Agencies

At this time, there was no such thing as a recruiter or a recruiting firm, and if someone had used the term talent acquisition professional, I would have thought I was being hit on by a pimp. It was an employment agency. The people who worked there were “personnel consultants” or “employment consultants.” They worked in little bitty offices with little bitty desks on which they had a little bitty wooden boxes with little bitty 5 x 7 applications printed on heavy card stock. Which, by the way, had places for one’s age, date of birth, social security number, marital status, number of children , amount of child support, and other income other than previous job and of course that most important of all…”Do you own a car?” The applications were 5 X 7, but the contract one was required to sign in order to obtain the services of this wonderful group of ladies was three pages long on legal paper. Said document, when condensed to legal meaning, gave them the right to all your worldly possessions, including the car they were worried about you having and at least your first born child. All of this to be attachable in the event they sent you to a company who hired you and you didn’t pay the fee. A full page was devoted to calculations showing what the fee would be based on your annual starting salary to be sure that folks didn’t die of a heart attack when they figured out that a job paying 900.00 a month was going to cost them $2,100.00. Payment terms were of course available. People stayed a long time on jobs back then; they had to if they went through an agency — at those salary ranges, it took three or four years to pay off a fee.

I filled out all the paper work, signed the contract, and was summoned into the presence of the “employment consultant.” I was ready to hear about all the wonderful new things I could do other than accounting. Preferably a job where I could do what I did best: talk on the phone.

My “consultant“ reviewed my application, double checked my signature on the contract (three times for all three places), and asked me how I wanted to pay my fee. Did I want to pay it all in one payment or would I prefer to pay it out in terms, and if so how many months did I think it would take me to pay it?

She went on to discuss that with the amount of child support I received, perhaps I would want to agree to pay it in one or two payments. This went on for 30 minutes. Finally, she asked , “What do you want to do since you don’t want to do accounting?”. I remember thinking, “I came in here so you could tell me what was out there, what kind of jobs I might do, or where an accountant who didn’t want to be an accountant could find a job to talk on the phone.”

I looked at her, smiled, and said,

“I want your job…I think I could do it better than you.”

There was a moment of shocked silence during which I was trying to remember the names of the other employment agencies in town, as I was sure this was going to be a short visit.

My “consultant” started laughing like a demented thing and said, “God I hate this job; I came in here last week looking for a bookkeeping job. They talked me into taking over the accounting desk and I hate this. Don’t move — I am going to talk to my boss.”

Five minutes later I was summoned into the office of the boss. He asked me, “Do you like people?”

Me: “No , I don’t like people, but I can handle people. I have an associate degree in psychology and I am trained to deal with people in crisis, but I really like to talk on the phone.”

The Boss: “Can you start Monday? We pay minimum wage ($3.25/hr at the time), no overtime, and you have to bring in three times your salary each quarter to make commission. Anything over three times your salary you get 10%.”

Me: “Can I talk on the phone?”

The Boss: “I want you on the phone all day.”

Me: “Sounds perfect, see you Monday.”

A New Opportunity

Having officially launched my career as an “employment consultant,” I waltzed back into the office where I was discovered and told the girl who wanted to be a bookkeeper to call a friend of mine who was looking for a bookkeeper. She did, interviewed the next day and was hired. She gave notice the day after that. I was asked to come in on Wednesday instead of the following Monday because I had just placed the consultant who was running the accounting desk. Well, I did say I could do her job better, didn’t I?

I quickly discovered that I was an excellent “employment consultant,” and my income proved it. My commission the second quarter I was there was over $11,000.00. I started making placements where the employers paid the fee (my boss threw a fit because I guaranteed them for 90 days replacement). I never asked anyone how they were going to pay their fee. After two years, I decided to start my own firm. Fees were all paid by employers, nobody signed any contracts, nobody filled out applications. I guess it worked — I’m still here. Professional Search, Inc. Int’l. grew and morphed from a niche O&G firm into a group of seasoned generalists who believe that we can recruit anything because we are recruiters who evolved from 5X7 cards to Boolean searches.

We’ve come a long way baby, but I still get to talk on the phone all day. It’s still what I do best.

Desks are specialized by industry, function, geography, or combinations of these, but it’s generally accepted that geographically specialized desks run the highest risk of eventually failing, simply because geography, by its very nature, is something fixed, inflexible, and subject to nature, man made disasters, or being too closely tied to one industry (please search: “hurricanes” “oil spill” “Detroit automotive”). However, there’s something to be said for firms which dominate their local markets. I know several owners who will not work outside their office’s immediate geographic location, and over the years they have become the “go to” guys in the industry for their locations. Most of these firms have desks specialized by function, but they generate all their business from the local marketplace. I admire these firms for how they have become dominant locally.

It’s also always better to look into the eyes of someone who cuts you a five figure fee; something local desk specialists can and should do. But I’ve found that I would rather have a few people in a lot of places cutting those checks than a lot of people in one place paying me, despite all the benefits of deep relationships with “clients” (note: quotation marks because I believe there is no such thing as a “client” in this industry). To my way of thinking, there will always be the need to spread out the risks so that one dumb oil company, or hurricane, or some other geo specific thing knocks me out of business. That said, my firm places by geography, but we do it in a different way: we take great candidates, find out where they want to go, then place them within 30 miles of exactly where they want to live, and usually within just 30 days [“30/30 Placement Program™”].

I’ve often wondered why anyone would perform “searches” anymore, which I did for my first eight years in the business. Why not simply “place”? Searches and job orders are means to an end…placement. The quickest way to make placements, good economy or bad, is to find a great candidate and place him/her exactly where they want to live and work. After 26 years in the business, I know that most people will accept a less than ideal position in their most ideal location before they will accept an ideal position in their less than ideal location. Also, solid placements result when you put someone into the city or town where they most desire to live and work. We recently placed a Navy lieutenant for 50k in his top location when he had an offer of 63k in his second favorite location. The other recruiter could not believe it. That is the norm, not the exception.