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

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 Software Int'l v. Real Soft, Inc., Docket No. A-1454-01T3 (Unpublished App.Div. 2003).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.

Mandatory CLE for NJ Attorneys

I recently distributed an article about the report of the New Jersey Supreme Court's Ad Hoc Committee on Continuing Legal Education as it relates to in-house counsel and inactive attorneys. Below are links to some of the materials reference in the notice.

NJ Court Rule 1:27-2 - Provides that in-house counsel licensed in another state but employed in New Jersey may obtain a limited license (subject to certain restrictions) to practice law in New Jersey solely for his/her employer.

NJ Court Rule 1:28-2(b) - Uses the term "inactive" for the purpuse of excusing inactive attorneys from New Jersey Client Protection Fund payments. Does not define "inactive."

Official Notice of the Ad Hoc Committee's Report dated November 10, 2008, but not published until December 1, 2008.

Full text of the Ad Hoc Committee Report.

Please email me if you would like a copy of the full text of my article.

Keyword Advertising - Trademark Infringement or Not?

I've been getting inquiries about keyword advertising. This is where a company buys a keyword from a search engine and when someone searches that word, the company's ad is displayed. These ads are also links to the advertiser's website. Google uses their trademark "Adwords" for this service. All in all, this can be an effective way of driving web traffic to your site.

The problem arises when a company buys a keyword which is also a competitor's trademark. Is that trademark infringement or is it good old fair competition? At the 2007 International Trademark Association Annual Meeting presentation on this issue in Chicago, the audience seemed to have as many different opinions as the courts do.

At a high level, courts in the 9th circuit (which includes California) have tended to hold that it is (or at least can be) trademark infringement. On the opposite side of the country (and the spectrum), New York courts have held that keyword advertising using a competitor's trademark doesn't even constitute "use" of the trademark (let alone infringement). To make matters even more confusing, we in the 3d circuit (NJ, PA & DE) have a split among the district court decisions on this issue. In Pennsylvania, this kind of keyword advertising is not trademark infringement, but in New Jersey it is. Go figure.

What do you think? Take the poll below the archive on this site.