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Temp Firm Can't Revive Claims Against H-1B Workers, Citigroup

May 07, 2015 (3 min read)

From Law360, May 6, 2015

"A New Jersey appellate court on Wednesday rejected a software services firm's appeals in separate contract suits against foreign workers — including one case also targeting Citigroup Inc. — because the company's failure to register under a law covering temporary employment businesses rendered the agreements void.

Spaceage Consulting Corp. failed to shake summary judgment decisions for onetime employees Dario Montecastro and Feng Zhang as well as Citigroup. Montecastro began working directly for Citigroup in November 2004, while Spaceage terminated Zhang in March 2005 after stints on projects for other companies.

A two-judge panel with the state Appellate Division consolidated the cases merely for the purposes of Wednesday's decision.

The company had sued Montecastro and Zhang for “training fees” and business damages. Under their “train-to-hire contracts,” neither worker was paid for the mandatory training, and they faced the threat of Spaceage suing them for training and recruitment fees if they breached those agreements within certain time frames, the court said.

While Spaceage eventually secured registration as a temporary help services firm under New Jersey's Private Employment Agency Act in January 2005, it had no such registration when the company executed its contracts with Montecastro and Zhang, according to the court.

The statute bans unregistered firms from going after workers for fees, the court said. While companies aren't subject to the law's registration requirements if they don't impose fees or liquidated charges on employees or prevent them from becoming employed with another entity, those exemptions don't cover Spaceage, according to the court.

“Because plaintiff was a nonregistered, nonexempt [temporary help services firm] when Montecastro and Zhang executed their contracts, the contracts are void and unenforceable ab initio,” the court said in its unpublished opinion. “Accordingly, plaintiff is barred from bringing or maintaining any action against Montecastro and Zhang.”

The panel also found that Spaceage didn't mount a timely appeal against Citigroup, which the company accused of tortiously interfering with Montecastro's contract.

When a judge granted summary judgment to Citigroup and another company that contracted with Spaceage and provided workers to the financial giant, Montecastro had been dismissed from the case without prejudice for more than 90 days, which was Spaceage's formal window for bringing a motion to reinstate claims against its former worker, according to the court.

That meant Citigroup and Mitchell Martin Inc. were the last remaining defendants in the case, and the decision in their favor triggered a 45-day window for Spaceage to file an appeal, which the company failed to meet, the court said.

However, the court went a step farther and backed findings that Montecastro's contract violated federal law.

In 2006, the U.S. Department of Labor determined that Spaceage had improperly failed to pay prevailing wages to employees subject to H-1B visas during their training periods, according to the court. Those visas are issued to foreign workers in specialty occupations, and the contracts for Montecastro and Zhang required Spaceage to secure such visas for them, the court said.

The DOL also had to warn Spaceage against trying to strong-arm H-1B employees to pay a penalty if they left the company before their contracts were up, according to the court.

On appeal, Spaceage tried and failed to convince the judges that Montecastro's contract didn't breach federal law because he wasn't an H-1B visa holder when he signed the contract and the DOL's findings only applied to H-1B employees.

The applicable regulations don't distinguish between an approved holder of a visa and an employee like Montecastro whose visa approval was pending, the court found.

“Because he received no wages during his training period and was charged a penalty for ceasing employment prior to the expiration of the three-year employment period, the contract violated federal law,” the opinion said.

An attorney for Citigroup could not immediately comment late Wednesday, while attorneys for the other parties did not immediately return a request for comment.

Spaceage is represented by Paul A. Clark.

Citigroup is represented by Jason H. Kislin of Greenberg Traurig LLP. Montecastro is represented by Alan L. Krumholz of Krumholz Dillon PA. Zhang is represented by Peter A. Kreiner of Kreiner & Kreiner LLC.

The cases are Spaceage Consulting Corp. v. Montecastro et al., case number A-4936-12T4, and Spaceage Consulting Corp. v. Zhang, case number A-5390-12T4, in the Superior Court of New Jersey, Appellate Division."