CHALLENGING SITUATION

My CLIENT hired my consultant for a long-term project which involved integrating systems and standard operating procedures of acquired companies into the CLIENT company. The CLIENT successfully acquired a company and my consultant performed the work within the defined scope. CLIENT kept my consultant on for many months even after the acquisition and had him work on other projects at the CLIENT level and at the acquired company (now called the SUBSIDIARY).

Here's the tricky part. My client is owned by a holding company or HC. The HC decided to separate the SUB from the CLIENT for strategic purposes. The CLIENT now wanted my consultant to spin-off the SUB (reverse integration) into a separate entity which would still be partly owned by CLIENT while both would be fully owned by HC.

My consultant was still charging hours on the SUB even after the spin off was successfully handled by my consultant (within 5 months after the spin off).

Ultimately, the SUB had a director retire and they pursued and hired my consultant. My consultant was still working at the CLIENT, staying on board with other work, but was interviewing with the SUB for that open position. Only when the consultant was hired did he email to let me know. The CLIENT never even told me that the consultant would be ending the project, as per our contract (it required 2 weeks written notice), much less telling me the consultant would be hired by it's former SUB.

To me, it's an obvious placement (conversion to be precise) with CLIENT at it's minority owned SUBSIDIARY. Client is balking at the logic.

In my original contract signed by me and CLIENT, there are terms for conversions and definitions for "related parties" such as common owned companies, and the 12 month period to handle hiring my consultant after the project ends and etc.

I am seeking my modest conversion in full and need talking points for that conversation. Clients don't understand what we as recruiters do and why certain things like conversion terms with subsidiaries are necessary. Any legal precedents out there I can present to the CLIENT to advocate for my business and my investors?

Thanks.

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Permalink Reply by Linda Ferrante on May 28, 2014 at 9:51am

I'm not an attorney so this is not legal advice, but have you tried having a conversation with them (both parties) about it? Being factual, pleasant, and professional would be imperative in the conversation, communicating the contract and the sticking points. I'd have that conversation first, and see how it goes. Depending on that conversation (DOCUMENT EVERYTHING), you should follow up appropriately. At that point, it may be a good idea to talk to an attorney. In Michigan, these contracts are very binding, but I don't know the legal side enough to communicate it to you. It has to do with 'honoring an agreement' and ignorance of the contract is not a defense (on their part). The company doing the interviewing (SUB) should have asked the questions and done the reference checks, then they'd have known about the contract in place. Not having done that doesn't excuse them from following the contract.

Hope this helps. If it were me, first would be a conversation, then follow up on that. Perhaps bringing in a lawyer for a stern letter, then going from there. Realistically, most companies would rather pay the fee than be known for being 'that guy' by way of a lawsuit.

Good luck! Please keep us posted!

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Permalink Reply by Calvin Grey on October 28, 2014 at 2:07pm

Linda,

Thanks for your response. I still haven't consulted with an attorney but that is an option.

The sister company with common ownership hired the consultant and it apparently working out great. The original client indicated continued interest in working with me on new positions but was firm they would not pay a conversion fee on the grounds that the company didn't benefit but the sister company did. The sister company is under common ownership and there is no working relationship between the two subsidiaries, even though at one time there was a reporting relationship (original client owned sister company and now due to restructuring, they are peer companies in the same investment portfolio of the same parent). The other justification for not paying a conversion fee was that they had paid me a generous amount over the past year for having the consultant on billing. Even on the original contract, a modest conversion fee (less than a full placement fee) applied without a number of hours having to be reached. Their internal attorneys even agreed to it.

So I acquiesced at that moment with the carrot of new business and after almost 6 months, still no new business or returned phone calls.

Linda Ferrante LoCicero said:

I'm not an attorney so this is not legal advice, but have you tried having a conversation with them (both parties) about it? Being factual, pleasant, and professional would be imperative in the conversation, communicating the contract and the sticking points. I'd have that conversation first, and see how it goes. Depending on that conversation (DOCUMENT EVERYTHING), you should follow up appropriately. At that point, it may be a good idea to talk to an attorney. In Michigan, these contracts are very binding, but I don't know the legal side enough to communicate it to you. It has to do with 'honoring an agreement' and ignorance of the contract is not a defense (on their part). The company doing the interviewing (SUB) should have asked the questions and done the reference checks, then they'd have known about the contract in place. Not having done that doesn't excuse them from following the contract.

Hope this helps. If it were me, first would be a conversation, then follow up on that. Perhaps bringing in a lawyer for a stern letter, then going from there. Realistically, most companies would rather pay the fee than be known for being 'that guy' by way of a lawsuit.

Good luck! Please keep us posted!