April 30, 2012

Can an employer charge you for quitting?

Filed under: For Managers, Hiring, Q&A, Readers' Forum

In the May 1, 2012 Ask The Headhunter Newsletter, an employer is out $6,000 when a new hire found through an agency jumps ship after 15 days. Can the employer charge the next employee for quitting?

We recently hired an employee using an agency through which he was temping for us. We paid the temp agency a fee of $6,000 (20%) of the person’s salary. After 45 days, the new employee resigned to move out of state. The temp agency says that he was here for more than 15 days, so they are not going to do anything about their fee.

We have a policy for encouraging continuing education. If an employee in good standing wants to take a course or go back to school at night or weekends, we will pay 70% of the costs, providing successful completion of the courses. If the employee leaves before two years, the employee must reimburse our company for the education expenses.

Because of this disagreeable experience with the agency, we are contemplating a similar policy: “If you leave before your second anniversary, you will need to reimburse some portion of the headhunter fee.”

What are your thoughts on this approach? It would make us feel more confident about using a placement service. Thank you in advance for your thoughts.

My Advice

Suppose you hired that employee without an agency’s involvement, and he quit after 45 days. Would you require him to refund part of the salary you paid him?

Of course not. Yet that’s what you’d be asking someone to do if you hired him through an agency: To pay you back out of their salary. Did you pay a fee to the employee so he’d come work for you? Of course not. So there’s nothing for the employee to refund.

(I’m not a lawyer, but my guess is it would be illegal for you to take back salary because someone quit a job.)

The agency, on the other hand, earned a fee for finding an employee for you. It’s up to you to work out a reasonable contract and financial arrangement with the agency, for the work it does for you (recruiting). The underlying problem is that you as the employer make the hiring decision — not the agency. The agency’s job is to deliver viable candidates. It’s duty ends there, or after some agreed-upon guarantee period. I don’t think any agency would guarantee a placement for two years, one year, or even six months.

I don’t like your idea at all because you’re making the employee responsible for your contract with the agency.

So what are your options as an employer? Let’s start with typical placement agreements, though of course they vary greatly. Commonly, a headhunter’s (or recruiter’s, or agency’s) fee is about 20% of the employee’s starting salary. Please note: The fee is not deducted from the employee’s pay. It’s merely calculated based on that salary. So it’s an additional cost to the employer. Employers that routinely use external recruiters usually budget for such fees. Negotiate the best fee you can.

It’s common for temporary placement agency agreements to permit you to change from “temp to hire” — that is, to hire the temp permanently. The fees and any guarantee period should be spelled out in the contract. To control your costs, you might negotiate a permanent placement fee that is progressively lower based on how long you’ve already been paying temp fees to the agency for that particular employee.

Whether it’s a temp agency or a headhunter you’re working with, the contract usually includes a guarantee period. Many recruiting firms offer guarantees for between 30-90 days. (Some offer no guarantee at all.) If the new hire “falls off” in that time, the agency will either replace the hire, or refund a prorated portion of the fee, or the fee is refunded completely. I’ve never heard of a 15-day guarantee period. It seems too short to be meaningful. But if that’s what you agreed to, it was your choice.

You might be able to negotiate a more aggressive refund guarantee with recruiters. Please keep in mind that it’s pretty unusual for a new hire to leave so quickly. (If it happens to you often, then you’ve got another problem!) Check a recruiter’s (or agency’s) references: Do they have a reputation for placements quitting early?

I want to caution you about charging placement fees back to your employees. If it’s not illegal, I think it’s unethical. It comes out of the employee’s salary, but (unlike education) the employee gets nothing in the bargain. I suggest you work this out with your agency or headhunter instead.

Has an employer ever charged you to quit your job? If you’re an employer, have you ever recovered a placement fee from a departing employee? Headhunters: How do you handle “fall offs?” How long is the typical “guarantee” on a placement?

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68 Comments on “Can an employer charge you for quitting?”
By Peter
April 23, 2013 at 5:58 am

The employer needs to shop around for a real temporary staffing agency, one that will invoice them weekly (or bi-weekly) for the temp. The staffing agency’s bill rate includes, in addition to some profit, FICA,Workers comp,, liability insurance, medicare, payroll administration and a few other alphabet payments.
What employer in his/her right mind is going to pay $6 grand, up-front for a low-level temporary employee. Of course the temp. will leave in a flash for a FT permanent job. Wouldn’t you?

By Julie
September 5, 2013 at 7:29 pm

I have a contract that states I need to repay 15K if I quit, I have already made the company 170 K so far. I thought the 15 K would come out of my expense account – before bonus, but now I read it should be paid lump sum – out of pocket after tax dollars!

I was also promised incentive compensation based on my production minus expenses, but have never seen overhead expenses disclosed. Everyone gets the same overhead attached, no breakdown of any kind, I only work part time and have never seen a bonus because of lack of proration. Very disappointing and I feel I should not be trapped into this.

I feel this fee is simply prohibitive to quit for the next 2 more years! Any way to contest this clause?

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By Brian
January 14, 2014 at 12:15 pm

Here’s a different wrinkle to this question…I’m a job seeker, and I’ve just started working with a recruiter who wants me to sign an agreement stating that I will reimburse him for his fee if I quit the job voluntarily within the first 90 days. I know this is common practice between employers and recruiters, but I have never heard of this between job seekers and recruiters. While I understand the motivations, it seems like this is pretty shady. Am I right that this is not something a reputable recruiter would do, or is this a more common practice than I think it is?

By Nick Corcodilos
January 14, 2014 at 1:32 pm

@Brian: This is not only shady, it’s unethical. My guess: This is a newbie recruiter who is terrified of the business. Tell the recruiter to take a hike. The recruiting contract is between him and the employer. You’re not part of it, you have no such liability. (Would he give you half the fee if you STAY on the job more than 90 days? Of course not. And that would be shady and unethical, too.) Feel free to tell him I said he should go suck rocks – and point him to this posting. If you really want some fun, call the employer’s HR VP and ask if they know about this “contingency” the recruiter has created. My guess: they’ll fire him, and he deserves to be fired.

By Brian
January 14, 2014 at 7:39 pm

Nick, thanks for the confirmation. He says his lawyer “made” him do it and that I’m the only person that has ever had a problem with signing the agreement. Pretty sleazy. I’ll take your advice and tell him to get lost. Thanks again!

By Julia
October 11, 2014 at 6:38 pm

I am slightly worried that I’m going to get charged for leaving my job. It’s only subway sandwich shop, but it says something in my contract about training costs of £200 needing to be repaid if you quit within a certain period. Will they take as much as they can out of my last paycheck? Or will I be required to pay the costs out of pocket?

By Nick Corcodilos
October 12, 2014 at 8:27 pm

@Julia: It’s hard to say. I don’t like that kind of clause in an employment contract. Oftentimes, employers put it in there to protect themselves in extreme cases, but do not always invoke it. It sounds like you are in the U.K. In the U.S., we have federal and state departments of labor and employment. If you’ve anything like that at your disposal, I suggest contacting them and asking whether this sort of obligation is even legal. If you are indeed required to repay the costs, I suggest you try to negotiate this with the employer to reduce it. I wish you the best. This is yet another way employers avoid training employees and instead implementing indentured servitude.

By Sue
October 27, 2014 at 9:10 pm

Employee’s, whether contract or full-time, are not indentured servants. People come and go as they need. Employer’s are free to fire At-Will and employee’s are free to quit as they see fit.

By Ask The Headhunter® | Nick Corcodilos – Parting Company: How to leave your job
February 2, 2015 at 11:41 pm

[…] Can an employer charge you for quitting? […]

By Tom
February 14, 2015 at 10:01 am

I worked for one company that had a “nicer” approach to this problem. They gave me a signing bonus ($1K), but I had to give it back if I quit before 1 year.

By Jim
May 27, 2015 at 9:15 pm

Here is my question…. I am an employer, and I had a recruiter reach out to me. This recruiter sent me several applicants and we interviewed 1, and now we are thinking about hiring this individuals (1 month has passed since the recruiter sent me the applicant’s resume). My question is… I never signed a contract with this recruiter or even negotiated a price. The recruiter told me it was 25% of the first year’s base which I said was way too high, and we never signed any agreement…and, now I want to hire the applicant.

Am I obligated to pay the recruiter 25% of the base salary with no contract in place?

By Nick Corcodilos
May 28, 2015 at 11:00 am

@Jim: It would depend on whether the recruiter is willing to sue you. In many states, it’s held that accepting a referral from a recruiter, and interviewing and hiring the person as a result, means you owe the fee. You knew a fee was involved when you accepted the referral.

I think the question here is, how much? The recruiter would have to argue that you accepted his terms. You’d argue you didn’t.

You need to be more forthright about this. You accepted the referral. You owe a fee. You need to work out how much.

The recruiter, however, is a slob if he failed to sign an agreement with you. He’s probably not a good recruiter. He’s dialing for dollars, and you answered the call. Even lousy recruiters sometimes field good candidates.

My advice: Be honest. And negotiate the best fee you can. If you don’t want to pay fees next time, don’t accept referrals. One way to do this is to send any recruiter who submits unsolicited candidates a letter that states you do not honor unsolicited referrals and you do not pay fees.

Please note that I’m not a lawyer, this is not legal advice, and I don’t know the laws in your state. You should consult with an employment lawyer. These cases can get very fuzzy.

By Michael
June 18, 2015 at 4:49 pm

I recently took a position and just after 30 days put in my resignation to take an opportunity. The employment offer included a clause that stated if I leave within 24 months I would be responsible for t”a pro rated amount of the recruiter fee. The fee was not specified and is $20k.

What do I do? Is there any recourse?

By Nick Corcodilos
June 18, 2015 at 5:38 pm

@Michael: I’d talk to a lawyer asap. I don’t know any good employer that would dream of such a clause in a job offer. The recruiter fee is a cost of the employer, not the person hired. Please – talk to a lawyer. Ask around, or check with your bar association for a lawyer who specializes in employment law. You could start by calling your state’s department of labor for some free advice.

What this company is doing is reprehensible, and I’m not sure it’s even legal. Don’t let it slide. I’d be interested to know how this turns out.

By Rovi
December 1, 2015 at 3:19 am

Hi good morning. I have friend working as a housemaid. She work 1 month and 2 weeks here in Qatar.. Bust still her employer doesn’t give her salary.. She informed it 2 times but still doesn’t have response. Aside from that her girl employer w/ c the wife of her boy employer wasn’t good.. Her girl employer alwys mad at her even if in a simple mistake she did they keep shouting ang telling here crazy.. She plan to run away alone ang go to her agency to report.. Because many times she attempted to tell her employer to get back in agency so she can replace another employer.. But her employer doesn’t want her to get out.. So is ok to run away in her employers house and go back to angency?

By Nick Corcodilos
December 1, 2015 at 12:09 pm

@Rovi: I have no idea what the laws are in Qatar, but two things seems clear. (1) If she is not being paid, it makes no sense to stay on the job. (2) If she is working through an agency, the agency is responsible for getting her paid and protecting her. Bottom line: She should do what is necessary to protect herself and to get paid for her work.

By Jen
December 5, 2015 at 11:07 am

Hi Nick… I recently left a position I had been at for several years. They are closing the business and the level of stress had increaed significantly for me as I was the only remaining employee. I was salary but had run out of vacation time but they had continued to pay me for days off after I asked them not to… Do I owe them the time back? Thank you for your input.

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