If not carefully structured, any contract can be fraught with pitfalls. Here are key provisions to include in your direct hire agreements to ensure that your firm is compensated fairly.

Written or disclosed fee agreement terms. Placement firms should always try to obtain a fee agreement signed by the client before making placement efforts. However, in practice, the hiring of direct hire candidates is often launched before clients return such agreements, and clients may later deny their fee obligations. Fortunately, the law of written contracts — the “statute of frauds” — requires only a written memorandum of the agreement reached orally or by conduct, but it does not require signatures.

Your agreement should provide that any client interviews or other interactions with your candidate constitute the client’s acceptance of the proposed written agreement terms that you have shared with the client. Other theories of fee entitlement such as oral contracts and quantum meruit exist, but they are more difficult to enforce than written contracts.

Definition of “client.” Clients may divert candidates to corporate affiliates or colluding vendors to avoid payment of placement fees. To prevent this, define “client” to include all affiliates of the company you are dealing with, plus non-affiliated entities to which the client may refer your candidates.

Definition of “submission.” Define “submission” of candidates to include presenting candidate information to a client in any way, for any position. This includes, without limitation, résumé disclosure, identification of the candidate to the client, summaries of the candidate’s qualifications, and arranging in-person or remote interviews.

Prior knowledge of candidate. Your standard agreement should also provide that submitted candidates are yours, unless, within 48 hours after your submission, the client documents earlier competitive submissions or recent and active direct recruiting contacts with the candidate.

Changing representation. Do not allow a client to evade fees by claiming that the candidate wants to “change representation.” The fee agreement is between you and the client. After initially allowing you to attempt placements, the candidate has no right to divert your fee. Confirm in the fee agreement that the client is responsible for avoiding multiple placement fee obligations and that you will not split fees with competitors.

Definition of a completed placement. Avoid using the narrow word “hire.” Rather, define a completed placement as an “engagement,” which is any method by which a client obtains the services of your candidate within a specified time after submission, including without limitation direct employment; independent contractor relationships; assignment from a competitor staffing firm, PEO, employer of record or consulting firm; and secondment.

Fees for placement into unrequested jobs. Define your right to the fee as the client engaging your candidates for any position, regardless of whether the engagement position was described in the job order, how well the candidate’s qualifications match the job order or whether the client engaged multiple candidates pursuant to a single job order.

Calculation of annualized fee. If a placement terminates during the first year, the client may demand a refund based on the compensation actually paid before the termination. To mitigate this, base the fee on the annualized compensation rate agreed to at the outset of the engagement rather than the compensation actually paid during the first year after engagement.

Right to proof or your fair estimate of compensation-based fee. Most placement fees are a function of the candidate’s starting compensation rate with the client. But you can’t be sure of what that actual compensation rate will be. Offer letters are helpful but not always conclusive evidence of starting compensation, which may change before the job is accepted. Reserve your right to obtain proof of the initial annualized compensation rate. Failing that disclosure, provide for your right to a fee based on your best estimate of the compensation rate until proof is supplied.

Guarantee conditioned on prompt payment. Guarantees of placed candidates, whether for replacement or pro rata fee refund, should be limited to certain reasons (such as resignation, cause or misrepresentation of qualifications) and should be conditioned on timely payment of the placement fee within your agreement’s terms.