How much should an employer pay for headhunting services rendered in absence of a written contract?

By ONC Lawyers | Friday, 14 Sep 2018

Headhunting and recruitment services are common and popular in Hong Kong. Headhunters often receive a referral fee upon successful referral of employee to employer. Disputes can occur when there is an absence of a written contract between the headhunters and employers or when there is a misunderstanding of the calculation of referral fees.

In Euro Search (Hong Kong) Ltd v Snow Lake Capital (HK) Ltd [2018] HKCU 668, the Court of First Instance (the “Court“) discussed whether an employer should pay for staff referral in absence of a written contract, and if so, how much should the employer pay, in the context of headhunting and recruitment service industry.

Background

The Plaintiff was a Hong Kong company providing headhunting and recruitment services in Hong Kong. During the period from 2011 to 2013, the Plaintiff had entered into two written agreements (“Written Agreements“) with the Defendant, a Hong Kong company being an investment advisory corporation registered with the Securities and Futures Commission in Hong Kong. Pursuant to the Written Agreements, the Plaintiff agreed to provide, and the Defendant agreed to engage, the recruitment and headhunting services of the Plaintiff.

However, it was only after the Written Agreements had expired, the Defendant requested the Plaintiff to refer an investment analyst to the Plaintiff and the referral was successful. The Defendant paid a certain sum as the referral fees to the Plaintiff. However, the Plaintiff argued that there were outstanding headhunting and recruitment fees which the Defendant should pay, according to the terms of the previous written agreements.

Judgment

The Court held that in spite of the absence of written formal contract entered between the Plaintiff and the Defendant, there was a binding agreement for rendering headhunting and recruitment services by conduct. The Court found that the Plaintiff expected to be paid for its services and that the Defendant proceeded on the assumption that the Plaintiff would be paid.

When deciding the quantum to be awarded to the Plaintiff, the Court looked into the construction of the expired Written Agreements and assessed what a reasonable person would have understood the parties to mean. The Court also looked into the email correspondence between the Plaintiff and the Defendant and found that a mere reply of “well noted” from the Plaintiff to the Defendant’s email in which a number of matters including the basic salary-only recruitment fees were raised could not prove the existence of an agreement by the Plaintiff to charge recruitment fees based only on basic salary. The Court was satisfied that the core terms of the expired Written Agreements were incorporated into the binding agreement between the Plaintiff and the Defendant.

When assessing what should be included in “the first year’s aggregate cash compensation” of the successful candidate hired by the Plaintiff, which should be paid by the Defendant to the Plaintiff pursuant to the binding agreement, the Court referred to another clause in the expired Written Agreements, which read “the annual basic salary accepted in writing by the candidate on joining the Client, sign-on bonus, guaranteed bonus, if any, that are paid to the candidate for joining the employment with the Client” and held that discretionary bonuses are excluded from the calculation of such “sign-on bonus, guaranteed bonus”. It is so even though a bonus is phrased as a “guarantee package”.

Implications for HR

Talents are valuable assets of a business and attracting rare talents may be worth the referral fees. However, the employers should always be reminded to seek independent legal advice before entering into a contract relating to any headhunting and recruitment services. On the other hand, where a transaction is fully performed, even in the absence of a written agreement, the parties may still be bound by the agreement concluded between them by conduct. Headhunters should always insist on having formal engagement letters signed before rendering any headhunting and recruitment services to avoid unnecessary arguments in calculating referral fees.

ONC Lawyers

ONC Lawyers is a professional and dynamic legal practice based in Hong Kong.  

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