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Theories of Recovery

The general contract principles govern employment agency contracts where the state statute does not provide any regulation.  The offer of a promise to pay for services in return for a provision of an acceptable applicant constitutes an employment contract.  If the agency fails to provide an acceptable applicant, then it fails to make an effective acceptance of the employer’s offer of a fee.  Therefore, no contract is formed and there is no contractual obligation on the employer and the employer is not liable to compensate the employment agency.  Generally, in the absence of an agreement between the employment agency and an employer in terms of fee, there is no express contract.

A failure on the part of the employment agency to perform according to the contract shall constitute a material breach of contract and it thereby excuses the employer from paying a fee to the agency.  However, the agency shall be liable to the employer for causing damages.

Where an agency asserts an oral contract and in the absence of a showing that the parties agreed to deviate from standard terms, a court shall appropriately apply the customs and usages of the employment agency business to determine whether an oral contract existed and any liability for a fee exists.  An oral agreement between the employment agency and an employer can change the fee arrangement.

The agency shall be entitled to collect a fee from the employer upon hiring an applicant referred by the agency, when the action of the employer constitutes an implied agreement to pay for the agency’s service.  Therefore, an implied contract is said to exist between the parties when an employer continues to pursue candidates submitted by an employment agency.  Moreover, such conduct constitutes an acceptance of the employment agency’s offer by the employer.

On the basis of a quantum meruit theory, an employment agency may be entitled to a reasonable fee even if there is no enforceable contract, if the agency’s efforts were the main cause for finding employment for an employee.  Where there is no express agreement regarding fees, the employment agency is entitled to recover on a quasi contract basis subject to a statutory fee schedule.


Inside Theories of Recovery