Remote Employees, Remote Jurisdictions?

By: R. Henry Pfutzenreuter

Introduction

Telecommuting is becoming an increasingly common practice with advancements in mobile computing technology, faster internet speeds, and a growing desire among employees for flexible work arrangements. More and more employers are offering their employees the option to work from home or on the road, which can place those employees across state lines. Telecommuting raises new legal questions, such as: What happens when a remote employee alleges discrimination, either while dividing time between home and office, or maybe even through online harassment? What about if there is a breach of the employment agreement? Or a whistleblower, retaliation, or defamation claim?

The trend in telecommuting, and the variety of employment claims that might arise while employees engage in it, requires employers to ask themselves: If there is a dispute, does the mere fact that the employee was working in another state or country subject the employer to personal jurisdiction there? Several courts have addressed the issue, and while the results have been generally consistent with established principals of due process, there are some important takeaways for employers with remote employees to consider about their potential exposure to lawsuits in remote jurisdictions.

I. Personal Jurisdiction & Employment Generally

Courts have not re-invented the wheel, or rather the Shoe, in analyzing personal jurisdiction over employers with remote employees. The standard set forth in International Shoe Co. v. Washington remains applicable, focusing on whether the employer has sufficient “minimum contacts” with the forum state so as not to “offend ‘traditional notions of fair play and substantial justice.’”1 But not all contacts are treated equally, as incidental ones that are unrelated to the cause of action are generally afforded little or no significance under the multi-factor tests applied in many jurisdictions.2 Ultimately, “there must be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State.”3

1 Int’l Shoe Co. v. State of Wash., Office of Unemployment Comp. & Placement, 326 U.S. 310, 316 (1945). 2 See, e.g., Pecoraro v. Sky Ranch for Boys, Inc., 340 F.3d 558, 562 (8th Cir. 2003) (analyzing the “nature and quality” of the contacts and “the relationship between the cause of action and the contacts”); In re Chinese-Manufactured Drywall Products Liab. Litig., 753 F.3d 521, 540 (5th Cir. 2014) (requiring contacts to be “purposefully directed at the forum state” and create “a nexus between the defendant’s contacts and the plaintiff’s claims”); Advanced Tactical Ordnance Sys., LLC v. Real Action Paintball, Inc., 751 F.3d 796, 801 (7th Cir. 2014) (“The relevant contacts are those that center on the relations among the defendant, the forum, and the litigation.”). 3 Hanson v. Denckla, 357 U.S. 235, 253 (1958). The U.S. Supreme Court has instructed lower courts to consider the “quality and nature” of a defendant’s contacts with a forum state.4 Where do remote employees fall in this spectrum of an employer’s contact with a forum state? Cases involving employers’ recruitment of employees residing in other jurisdictions provide some insight. Generally speaking, merely communicating with an individual in another state about an employment opportunity is insufficient to confer personal jurisdiction over the employer in that state.5 In a similar vein, employing a resident of another state without more will not subject an employer to personal jurisdiction in the state where the employee resides.6 These holdings suggest that the ancillary contacts that often accompany remote employment arrangements are insufficient, by themselves, to trigger personal jurisdiction over an employer who hires a remote employee in another state.

II. What Have the Courts Said About Remote Employees?

Courts that have considered whether having a remote employee in another state subjects an employer to personal jurisdiction have centered on the concept of purposeful availment. For example, in Cafesjian v. Armenian Assembly of America, Inc., the District of Minnesota held that an employee’s “decision to work from home in the forum state generally does not bind an entity to personal jurisdiction in that state where the purpose of the arrangement is merely for the [employee’s] personal convenience.”7 Likewise, in Lucachick v. NDS Americas, Inc., the District of Minnesota held that it lacked personal jurisdiction over an employer when the employee’s decision to work remotely was his “personal choice.”8 More recently, in Listug v. Molina Information Systems, the District of Minnesota again held that an employee’s “decision to work from home in Minnesota does not confer jurisdiction.”9

Courts in other jurisdictions are generally in accord. In Zibiz Corp. v. FCN Tech. Solutions, the Southern District of New York declined to find that it had personal jurisdiction over an employer sued by a remote employee, holding that “courts in other jurisdictions have consistently found that the mere presence of an employee within the forum state was insufficient to confer general personal jurisdiction over an out-of-state corporate defendant.”10 In contrast, the First Circuit found personal jurisdiction over an employer sued by a remote employee in Cossart v. United Excel Corp., reasoning that the employment contract “contemplated that [the

4 Pecoraro, 340 F.3d at 562. 5 See Farris v. Williams, 2006 WL 1716285 (D. Minn. June 21, 2006) (“[N]egotiations over the phone to a person in Minnesota is not sufficient in and of itself to confer personal jurisdiction over a defendant.”). 6 See Lucachick v. NDS Americas, Inc., 169 F.Supp.2d 1103, 1106–07 (D. Minn. 2001) (“[The employee] contends first that the existence of the employment contract between him and [the employer] is enough to confer jurisdiction. Entering into this contract is by itself insufficient grounds upon which to predicate the exercise of this Court’s jurisdiction.”). 7 2008 WL 906194 (D. Minn. Mar. 31, 2008). 8 169 F. Supp. 2d at 1107. 9 2014 WL 3887939 (D. Minn. Aug. 8, 2014). 10 777 F.Supp.2d 408, 419 (E.D.N.Y. 2011). employee] would continue to work from [the jurisdiction] on [the employer’s] behalf and the company would facilitate that work by providing the requisite office equipment.”11

These holdings make sense from a due process standpoint, since an employer has not purposefully availed itself of another state’s jurisdiction by simply providing its employees with the option to work remotely for their own convenience. Otherwise, the employee might exercise that option anywhere, inadvertently creating contacts for the employer where ever the employee chose to travel, a result that would certainly “offend ‘traditional notions of fair play and substantial justice.’”12 On the other hand, where an employer directs an employee to work in another state for a business-related purpose, the employer may be engaging in the type of “voluntary, affirmative economic activity of substance” that has been held to give rise to personal jurisdiction in other cases.13

III. Avoiding Remote Jurisdiction

Venue is an important issue to employers for multiple reasons. Certain jurisdictions have the reputation of being either management or labor friendly.14 Statutory employment laws may also have material differences from jurisdiction-to-jurisdiction.15 Jury pools too, can reflect geographic-cultural differences that may be more or less receptive to certain claims, and either side may find themselves with the hometown advantage if they have a presence in the community or personality that resonates with the jury.16

As a result, employers facing employment-related claims should not only be aggressive about seeking the most favorable venue after they become the subject of a lawsuit, but they should also be proactive about limiting their exposure to lawsuits in foreign jurisdictions in the first place. Having the right evidence on hand to support a motion for lack of personal jurisdiction when hauled into a foreign jurisdiction can avoid the costs and delays associated with orders to engage in early jurisdictional discovery.

To this end, employers with remote employees should have a Remote Employee Policy drafted to control their exposure to lawsuits in foreign jurisdictions. In light of the cases discussed above, which suggest that employer-mandated telecommuting can trigger personal jurisdiction, a well-drafted Remote Employee Policy should specify when telecommuting is

11 804 F.3d 13, 21 (1st Cir. 2015). 12 Int’l Shoe, 326 U.S. at 316. 13 Aftanase v. Econ. Baler Co., 343 F.2d 187, 197 (8th Cir. 1965). 14 See The Impact of State Employment Policies on Job Growth, U.S. Chamber of Commerce 2011 (analyzing the favorability of each state’s employment laws to employers and employees). 15 See, e.g., California Fair Employment and Housing Act, Cal. Gov’t Code §§12900–96 (including a number of laws exceeding the protections provided by the federal government and other states). 16 See Neal Miller, An Empirical Study of Forum Choices in Removal Cases Under Diversity and Federal Question Jurisdiction, 41 Am. U. L. Rev. 369, 382 (1992) (discussing preference for forum selection clauses because of jury pool differences, among other variables). optional, i.e., for the personal convenience of the employee. Leaving this detail out of a Remote Employee Policy takes away an important argument for objecting to personal jurisdiction right out of the gates.

But when telecommuting is a condition of employment, for example when an employee must work on-site for a client or at home covering a sales area in another state, the cases discussed above suggest that a court is more likely to find that the employer is subject to personal jurisdiction in that state. An employer seeking to control this exposure should include a forum selection clause in its Remote Employee Policy specifying that any disputes arising while employees are working remotely must be resolved in the jurisdiction where the employer’s principal place of business is located. The enforceability of such clauses, however, can vary not only from jurisdiction to jurisdiction, but also with respect to the subject matter of the dispute.17

Finally, a well-drafted Remote Employee Policy should specify the job functions that occur where the employer’s principal place of business is located. While the job functions may vary, at a minimum the Remote Employee Policy should specify that common human resource and technology support functions such as payroll processing, administering benefits, network access, and data storage take place at the employer’s headquarters, and not in any other jurisdictions. Having these facts set out in advance may help an employer establish that it did not purposefully direct its contacts into the jurisdiction where the remote employee is located.

Conclusion

The rules for analyzing personal jurisdiction have been surprisingly adaptable to changes in technology, business, and society, and courts have found creative ways to ensure that the principals of due process remain upheld. As the trend in telecommuting continues to grow, employers should stay aware of ongoing developments in the area of personal jurisdiction to ensure that their remote employees do not subject them to remote jurisdictions.

17 See, e.g., Verdugo v. Alliantgroup, L.P., 237 Cal. App. 4th 141, 150 (Cal. Ct. App. 2015) (refusing to enforce forum selection to detriment of employee’s statutory rights); SKF USA Inc. v. Okkerse, 992 F. Supp. 2d 432, 445 (E.D. Pa. 2014) (holding that forum selection clause supported exercise of personal jurisdiction in employment agreement when dispute concerned contractual non-compete).

R. Henry Pfutzenreuter is an associate with Larkin Hoffman Daly & Lindgren Ltd., and a member of its franchise and distribution, commercial litigation, and employment law groups. He can be reached at [email protected] or 952.896.3325.