Got Remote Workers? You Need to Understand Jurisdiction

Kirsch CPA Group

Jul 07, 2021

The pandemic isn’t in the rearview mirror yet, but it’s already clear that the U.S. business landscape has changed. Many employers, for example, are expected to allow their remote workforce to remain working from home even though social distancing may no longer be necessary.

If you’re mulling this decision or have already decided to allow employees to work from home permanently, make sure you review the possible employment law-related consequences. Having a disbursed workforce could be disadvantageous if your company becomes involved in employment litigation. Here’s what you need to know about the legal concept of personal jurisdiction and how it applies to your company.

Home-Field Advantage

Employers that are sued by employees normally want to defend themselves in the state where they’re headquartered. Prevailing state laws and rules governing legal practice in those states can have a significant impact on litigation proceedings.

However, if employees work from home in other states and decide to take legal action against your company, they most likely will want to file where they live. This can put you at a disadvantage. For example, if another state has jurisdiction, litigation may be less convenient and more expensive for you. Also, your legal team and professional advisors may be less familiar with judges and local rules if they take place in a different state.

What Counts as Contact

In general, employers’ personal jurisdiction is determined by the number of direct “contacts” or connections they have in a state. Having an employee work remotely in a different state creates contacts — or connections — within that state. Other contacts might include business registration filings, tax payments, receipt of revenue and advertising.

In general, courts review several factors when determining jurisdiction. Three contacts in particular weigh heavily in the decision:

1. First contact. This refers to how the employer and employee (or prospective employee) first made contact. If the employer recruited the employee by “reaching in” to the employee’s state, it may be enough to trigger jurisdiction in that state.

2. Source of request. Did the employer ask the employee to work from home or was it the other way around? If the employer unilaterally created the arrangement, it favors jurisdiction in the employee’s state.

3. Supporting documentation. Some employers try to prevent potential jurisdictional conflicts by stipulating appropriate legal forums in their employment contracts. However, the enforceability of such clauses depends on the state.

Strengthen Your Position

It’s important to do what you can to maintain in-state jurisdiction should it ever become necessary. For instance, recruiting employees locally is generally less hazardous than recruiting across state lines. Be clear in any job postings that the employer’s state will serve as a home base.

Similarly, conduct employment negotiations from your offices. Arrange for out-of-state employees to come to the company premises for interviews, contractual signings and other employment-related matters. Any legal documents should be drawn up in your home state.

Also update your employment policies and procedures, including written representations in your employee manual. Specifically:

Observe formalities. If an employee has asked to work from home, document that the arrangement is completely for the employee’s convenience and that your company is simply accommodating the request.

Take a hands-off approach. When it comes to controlling a remote employee’s work environment, less is more. Give the employee the freedom and responsibility for functionality, health and safety, and direction. Note: You can require employees to take security measures for proprietary information.

Don’t pay the freight. Limit your direct support of at-home workers. Don’t pay for equipment, utilities and office furniture. For expenses that go beyond the normal job requirements, use the reimbursement process.

Stress your address. Don’t allow employees to use their home address as their company’s location on business cards, emails or other communications.

Address the recent pandemic. If you expect to bring workers back on-site as the pandemic abates, say so. Make it clear that the requirement to work from home was only temporary and necessary for safety reasons.

No Guarantees

Even if you take every precaution, it’s possible an out-of-state court will rule against your company when it comes to jurisdiction. Be sure to discuss preventive steps with legal counsel and HR staff.

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