Employment Agency’s Recovery of Placement Fee

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 What is an Employment Agency?

An employment agency is a company which matches a potential employee with a business that is in need of that employee. For example, an employment agency may find a job for an employee at a company in exchange for being paid a fee.

In some cases, that employee may only be with the company for a short period of time or the position may be for permanent employment. Both individuals and employers enjoy using employment agencies as an easy way to find employment and to fill vacant positions.

Employment agencies often provide a wide range of employment services, which may include:

  • Editing resumes;
  • Placing temporary candidates; and
  • Securing interviews with companies.

In some cases, an employment agency will offer services to job seekers which are personally tailored to the needs of the individual job seeker. Therefore, many employment agencies operate as private, small businesses. Some employment agencies focus on particular job specialties, including the technology of finance sectors.

For example, if an individual is searching for employment with a financial institution, an employment agency may be able to help them find open positions and schedule interviews with companies in the finance industry. The agency can also review the individual’s resume for errors, provide tips for the interview, and follow up with the company regarding their decision after the interview process is complete.

Additionally, because many employment agencies operate as private companies, they may charge a placement fee to the job seeker for their assistance in getting them a job. However, there are legal issues which may arise when working with an employment agency.

How do Employment Agencies Make Money?

In general, there are four ways in which an employment agency can make money. These include:

  • Charging an individual an up-front fee for finding employment for them;
  • Taking a percentage of an individual’s salary from their new paycheck as a fee for the employment agency’s service;
  • Charging the new employer a percentage of the individual’s salary as a fee for the employment agency’s service; or
  • Charging a company a lump-sum fee when they hire a worker the employment agency brought to them.

What are Some Common Reasons for Filing a Lawsuit against an Employment Agency?

There are several common reasons for filing a lawsuit against an employment agency. These include:

  • Breach of contract;
  • Misrepresentation or negligent misrepresentation;
  • Wage and hour disputes;
  • Loss of income claims;
  • Discrimination; and
  • Violations of various state statutes.

It is important to note that some of these previously mentioned reasons may only be permitted in lawsuits which are filed by workers, whereas others are reasons that may be applied by the employer.

What is Needed to Recover a Placement Fee?

In some cases, the fee which an employment agency is entitled to for placing an employee with a company is not being paid. In these cases, an employment agency may sue the company or the employee, depending on which party is responsible for paying that fee.

In order to prevail, the employment agency is required to prove:

  • That the agency complied with any applicable licensing or statutory requirements governing employment agency operations, including 5 USCA § 7342;
  • That the company had a contractual obligation to pay the employment agency a placement fee;
  • That a worker was referred by the employment agency, and was hired by the company;
  • That the employment agency was the reason the worker found the job and the other company hired them; and
  • That the employment agency was not paid their appropriate fee.

What is Recoverable?

In general, if a lawsuit to recover the employment agency’s placement fee is successful, the recovery may consist of:

Can Employment Agencies be Held Liable for Employees?

Employment agency lawsuits largely depend on the provisions of the contract which was formed between the interested parties. In general, an employment agency has a duty to disclose truthful information regarding a job candidate which is being presented for employment to a specific employer.

While a potential employee may not be able to sue an employment agency for getting fired or for not finding them employment, an employment agency may be held liable for the actions of an employee. Legal issues which an employment agency may face when being held liable for an employee’s actions may include:

  • Breach of contract. For example, if a contract contained specific provisions regarding a placement fee and the employment agency did not honor that, then the agency could be held responsible for breach of contract;
  • Negligent misrepresentation. An employment agency can be held liable if they make false statements about a prospective employee, whether the statement made was intentional or not. For example, if the agency lied to an employer about a candidate’s qualifications, or alternatively, if they tricked an employee into accepting a job offer by providing inaccurate information about the salary; and
  • Violations of state statutes. Both contracts and private employment agencies are usually governed by state statutes. For example, a principal-agency relationship, which is essentially what the employee-employment agency relationship is modeled upon, is governed by state law. Therefore, if an employment agency fails to obtain the proper license to run its business or discriminates against prospective employment candidates, then the agency could be held liable for violating a relevant state statute.

It is important to note that an individual who utilizes the services of an employment agency is not considered to be employed by that agency. Therefore, an employer may not sue an employment agency for vicarious liability since the employer-employee relationship is not established between the employee and the agency.

However, the employer may be able to sue the employment agency pursuant to the rules governing the principal-agency relationship. This applies in cases where the employee hired an employment agency to act as their agent in securing placement at the employer’s place of business.

Are Employment Agencies also Liable to Employers?

In some cases, an employment agency may be liable to an employer. Similar to those issues which arise in connection to a lawsuit involving an employee and an employment agency, the employment agency may be held liable by the employer for the following issues:

  • Negligent misrepresentation;
  • Breach of contract; and
  • Violations of various state statutes.

Because of this, employment agencies must take extra precautions when making statements regarding a prospective employee to an employer. This is because some employment positions require that the employee be qualified or certified to perform the work.

For example, if a particular job requires an employee to have a professional license and an employment agency recommends a candidate for the position who is unlicensed, then the employer can hold the employment agency liable for damages which resulted from hiring the unqualified candidate based on the agency’s misrepresentations.

Are There any Defenses?

Yes, there are some defenses which may be available in a lawsuit against a company or a worker by an employment agency. Defenses may include:

  • The employment agency failed to comply with the applicable statutory or licensing requirements governing employment agency operations;
  • No placement contract existed;
  • The Statute of Frauds bars the enforcement of the contract;
  • The worker was not hired in an employment relationship;
  • The agency did not cause the employee to be hired by the company; or
  • The agency materially breached the placement contract.

Should I Contact an Attorney?

It is important to have the assistance of an contract lawyer if you are concerned about the recovery of outstanding fees to an employment agency. An attorney will be able to review your situation, advise you regarding the issues in your case, and assist you in preventing the collection of an employment agency’s placement fee, if possible.


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