Another Trap for Consultants in a Down Economy; Unregistered Consultants Barred From Court

February 25, 2009 | No Comments
Posted by Kurt E. Anderson

In 2002 and again in 2003, I wrote about the importance of consulting firms making sure to register in New Jersey as temporary help service firms. A new case decided in January makes this point yet again. If you are providing staff augmentation or consulting work, you probably need to be registered. Camo Technologies Inc. v. Pathan, 2009 WL 17890 (N.J.Super January 2, 2009). Here is an excerpt from a piece I wrote in 2002 explaining the dilemma which is even more poignant today.

“In a down economy, companies try to cut costs by limiting their outside consulting. Rather than engage an outside consultant for a full project, they try to save money by fixing the problem [using] mostly in-house [personnel]. However, many companies also seek help from short-term, skilled people engaged on a limited basis. Hungry consulting companies respond by gladly offering up their skilled employees on a temporary basis for whatever projects their customers need. Consulting companies who do so risk becoming subject to the [Private] Employment Agency Act and, therefore, may be unable to enforce customer contracts unless they are licensed or registered under the [Act].”

The first big case on this point was decided in 2001. At that time the New Jersey courts refused to enforce a subcontracor contract entered into by a temporary help service provider who was unregistered under the Private Employment Agency Act. Data Informatics v. AmeriSource Partners, 338 N.J. Super. 61 (App.Div. 2001). Then in 2003, the New Jersey courts refused to enforce a business-to-business non-solicitation provision between consulting companies. Software Int’l v. Real Soft, Inc., Docket No. A-1454-01T3 (Unpublished App.Div. 2003).

The 2009 Camo case confirms some important aspects of the statute and takes this a step further. In Camo, the New Jersey court held that:

1. Registration after the fact doesn’t cure the problem for contracts entered into before registration;

2. Employment agreements of unregistered temporary help service providers are unenforceable; and

3. Not only will contracts not be enforced, but also the courts will not enforce other claims arising out of the same circumstances (e.g., torts).

The first holding would seem to fall squarely within the statute.

The second holdings represents a broad reading of the statute, but is consistent with prior case law.

The third holding is an even broader interpretation of the statute than prior cases. The statute only expressly prohibits unregistered companies from using the courts “for the collection of a fee, charge or commission.” N.J.S.A. §34:8-45. Arguable, compensatory damages arising out of breach of an employment agreement or a tort are not a “fee, charge or commission.” However, since all of the claims arose out of the same set of circumstances which were all related to the temporary help service business, the court concluded that they were all unenforceable.

After Camo, it is harder to imagine a set of circumstances in which an unregistered temporary help service firm would be able to bring any action in any court in the state.

This case (together with its predecessors) send a clear message. Unregistered temporary help service providers will not be provided access to the courts for almost anything related to the conduct of their business.

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