Temporary Help Service Firms vs. Employment Agencies, and Registration vs. Licensure

AIT Global Inc. v. Yadav, 445 N.J. Super. 513 (App. Div. 2016).  Plaintiff in this case was a temporary help service firm (“THSF”) that provided short-term information technology consultants for plaintiff’s customers.  Defendant was one of those consultants.  The parties entered into an employment agreement whose initial term was twelve months, and which contained a liquidated damages provision if defendant, the employee, terminated the agreement early,as well as a restrictive post-employment covenant.  After about seven months, defendant notified plaintiff that he was resigning.  Plaintiff sued for the liquidated damages, and defendant counterclaimed.

The parties cross-moved for summary judgment.  Defendant’s argument was that the employment agreement was unenforceable because plaintiff was not licensed as an employment agency, which he argued was required by the Private Employment Agency Act, N.J.S.A. 34:8-43 et seq. (“PEAA”).  The Law Division agreed with defendant and entered judgment dismissing the complaint and awarding defendant recovery on his counterclaim.  Plaintiff appealed, and today the Appellate Division reversed in an opinion by Judge Whipple that applied the familiar standard of review for decisions granting summary judgment.

Judge Whipple properly focused on interpreting the PEAA.  She noted that statutory language is to be given its “ordinary meaning” and construed “in a common-sense manner.”  The courts cannot add terms or interpret a statute in a way that would contravene its plain meaning.  And, “[w]here plain language leads to a clear and unambiguous result, then the interpretive process should end, without resort to extrinsic sources.”

The PEAA, as Judge Whipple observed, distinguishes between THSF’s and employment agencies, defining them differently and subjecting them to different requirements.  “Employment agencies must obtain a license, which requires them to demonstrate compliance with extensive statutory and regulatory criteria.  See N.J.S.A. 34:8-48; N.J.A.C. 13:45B-2.1(a).  By contrast, THSFs only need to obtain registration, which is a significantly less-stringent process than obtaining licensure.  See N.J.S.A. 56:8-1.1.”

Defendant, however, contended that plaintiff needed to be licensed as an employment agency, based on N.J.S.A. 34:8-46(h).  That statute provides that the PEAA does not apply to any THSF that does not “(1) Charge a fee or liquidated charge to any individual employed by the firm or in connection with employment by the firm; [or] (2) Prevent or inhibit, by contract, any of the individuals it employs from becoming employed by another person ….”  Defendant argued that this language bars THSF’s that are not licensed as employment agencies are barred from imposing restrictive covenants or liquidated damages upon employees, and that contracts entered into by THSF’s not licensed as employment agencies are unenforceable if they contain such provisions.

Judge Whipple disagreed.  Though the issue was “one of first impression in this court,” Judge Whipple pointed to the “well-reasoned opinion” of Judge Douglas Wolfson in Logic Planet, Inc. v. Uppala, 442 N.J. Super. 488 (Law Div. 2015).  (This is the second time in the last six months or so that the Appellate Division has commended Judge Wolfson by name for one of his opinions).  The plain language of the PEAA defeated defendant’s view.  “Nowhere in the [PEAA] does the Legislature suggest that registered THSFs cannot include enforceable restrictive covenants and liquidated damages provisions in employment contracts.  Rather, N.J.S.A. 34:8-46(h) merely exempts THSFs from the [PEAA’s] purview if they do not impose restrictive covenants and liquidated damages provisions on their employees.”

Judge Whipple thus concluded that the PEAA makes subject to the registration requirement, but only that requirement and not licensure, any THSF that includes liquidated damages or restrictive covenants in its employment agreements.  “In other words, the [PEAA] requires employment agencies to be licensed, and THSFs to be registered, in order to bring actions to enforce contracts made with their employees.”  Defendant was registered, so its agreement was enforceable.  Accordingly, the panel reversed the decision below.

Though, as Judge Whipple noted, this was an issue of first impression at the Appellate Division level, her decision does not appear to be worthy of Supreme Court review.  Whether review will be sought remains to be seen.