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Monday, February 20, 2006

Flicktertail Supreme Court Voids Employment Agreement As Against Public Policy

North_dakota_state_flag_1Craig Peterson, a CPA and lawyer, sought employment in the tax law field.   He entered into a contract with Preference Personnel (“PP”), whereby PP agreed to assist Peterson in finding employment.  The contract provided that the employer would pay PP a placement fee of 20% of one year’s gross salary.  However, if Peterson voluntarily quit the position found by PP within the first 90 days of employment, Peterson was responsible for paying the placement fee.  PP found Peterson a $60,000 a year job, but Peterson voluntarily quit before the expiration of the 90-day period.  PP paid the employer the $12,000 placement fee.  PP then, in turn, sought to recover the fee from Peterson.

It turns out that, at the time PP was assisting Peterson, its license to operate an employment agency had expired.  The North Dakota Department of Labor later reinstated PP’s license retroactively.  The case presented two related questions.  The first issue was whether the Department of Labor had the authority to reinstate PP’s license retroactively.  The North Dakota Supreme Court held that N.D.C.C. § 34-13-02 did not give the Department of Labor the authority to issue licenses retroactively.

Thus, the second issue was whether the employment agreement was enforceable because PP was unlicensed at the time it entered the contract.  The North Dakota Supreme court held that the agreement was not enforceable because it was against the State’s policy of “requiring licensure prior to conducting any activities as an employment agency.”  The Court reasoned:

If public policy considerations require employment agencies to undergo extensive licensing requirements before being allowed to legally conduct business in this State, it follows that it is against the public policy of this State to enforce a contract between an individual and an unlicensed employment agency.  To conclude otherwise would undermine the purpose of the licensing requirement.

The Court held that, although Peterson may have breached the contract, the contract was unenforceable because PP was unlicensed at the time the parties entered into the agreement.

Preference Personnel, Inc. v. Peterson (N.D. Feb. 8, 2006).

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