When (and When Not) to Contract in a State You’re Not Licensed

You may think a few accounts is OK, but do you really want to contract with hundreds or more of accounts in a state where you’re not licensed?

When (and When Not) to Contract in a State You’re Not Licensed

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A question comes up when an alarm client in one state wants to do installation, service or monitoring for a subscriber with multiple locations in other states where the alarm company is most certainly not licensed. If you are performing licensed activities in a state then you need the license required by that state unless there is reciprocity, which means you are licensed there.

As a practical matter if you have one customer with one location in a state where you aren’t licensed it’s not likely that it is economical for you to get licensed, especially if you have to engage someone to work for you who can qualify the company for a license. You will have to weigh the risk-reward taking the chance of performing unlicensed activity in the state.

I wouldn’t recommend installing a fire alarm system, but if all you’re doing is monitoring the account and subcontracting that service to a wholesale monitoring center that is licensed in the state, you might take the chance. But even then, read on.

Both Licensed in the State

For me the critical factor is that the alarm company and the subscriber are both in the licensed state and the contract will be signed by both in the state. The law of that state will be the chosen jurisdiction for selection of law, enforcement and venue.

Now let’s look at that multilocation subscriber. The main office is in the same state as the alarm company, which has a license in that state.

A request is made to install, service and monitor electronic security or fire alarm systems in other states where the alarm company is not licensed. The contract will be signed in the alarm company’s and subscriber’s home state, where the alarm company is licensed. Now it gets complicated. Technically, a license is required in some states to perform any of those intended activities.

In most states, hiring a subcontractor that is licensed is probably not going to resolve the license issue for the alarm company that contracted with the subscriber. While the contract will likely provide that the home state is the state for jurisdictional, enforcement and venue purposes that will not be controlling on a licensing agency in a foreign state.

So, the licensing agency will not be prevented from issuing a violation to the out-of-state alarm company. The scope of the violation will be important. The likelihood of the licensing agency getting involved and the severity of the consequences for the unlicensed work will be different if the unlicensed out-of-state company installed an intrusion or camera system for one customer or 25 commercial fire alarms for one or more customers, even if those customers have their home office in a different state.

It may also matter if the unlicensed activity consists of installation, repair or monitoring, but again I think it will depend on the scope of the violation. What can the consequences be? Some that come to mind include fines, requiring you to quit the state and give up the customer and contract in the state, prohibiting you from getting a license temporarily or for a very long time.

You may be willing to take the chance for a handful of accounts, but do you really want to contract with hundreds or thousands of accounts in a state where you’re not licensed? You may be required to cancel every contract.

Liable for Damages

No buyer with a brain is going to want to buy those contracts, at least not for a multiple that you’ve been dreaming about. Some unlicensed activity may rise to the level of criminal conduct. While the fact that you’re not licensed may not mean you were also negligent and therefore liable for damages suffered by customers and third parties, it will constitute a breach of contract if the contract represents that you are licensed (customer can terminate for breach and withhold payment).

Bottom line: The state where the parties have their home office and where the contract is signed is the state for conflict of laws issues and jurisdiction (as between the parties). You should be licensed if you are performing licensed activity in a jurisdiction that requires a license; that means your company needs the license.

Not all violations of the licensing law will be treated the same, so depending on your tolerance level you may be able to get away with only one sleeping pill instead of taking the entire bottle.

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About the Author

Ken Kirschenbaum
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Security Sales & Integration’s “Legal Briefing” columnist Ken Kirschenbaum has been a recognized counsel to the alarm industry for 35 years and is principal of Kirschenbaum & Kirschenbaum, P.C. His team of attorneys, which includes daughter Jennifer, specialize in transactional, defense litigation, regulatory compliance and collection matters.

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