Return to site

Do You Know whether Your Small Business Can Be Sued in a Foreign State, if Your Company Has Workers Telecommuting from that State?

If you are a small business employer who uses a remote workforce that is made up of some or even one out-of-state employee - you will want to read this!

For many businesses the COVID-19 pandemic has made telecommuting the norm and not the exception. Therefore, it is very likely for small business employers, like you, to have remote employees living/residing in a different state from the main company location (e.g.; here in Illinois – employees might live in close-by neighboring states like Wisconsin, Indiana, Michigan). If this is the case for your business do you know whether your business is subject to the jurisdiction of the state where your employee(s) is performing his/her job remotely? In other words, do you know if your company can be sued in the state where a remote employee(s) resides and is working?

The not so helpful answer is – "possibly“- so you should be aware of certain factors, discussed below, to be able to place your company in the best position possible to avoid being subject to a lawsuit, in every state, where you may have a remote employee working.

Preliminary Things to Know…

A state court where the case is filed, (aka the “forum state”), must have personal jurisdiction over the employer/entity being sued. For there to be personal jurisdiction, the employer must have sufficient minimum contacts with the forum state so as not to “offend traditional notions of fair play and substantial justice.” A court will look at general versus specific contacts whereby specific contacts would be those relating to the particular subject matter involved in the litigation (e.g.; your business dealings in the forum state) versus general contacts of unrelated items to the forum state.

The good news is case law has shown that just having an employee located in another state, who works remotely for his/her convenience, is likely to be insufficient for that foreign state to have personal jurisdiction over your company. Likewise, the same outcome may be true when potential employment with your company is discussed with an individual in a foreign state.

However, there may be a difference when the situation is such that your company proactively encourages the remote employee to expand business or serve the interests of the company in that remote state.

Three --> Critical Q&As to Determine if Your Company Could Be Subject to the Jurisdiction of a Foreign State...

  1. Did you (the employer) intentionally direct the contact or actively recruit the employee in that separate state?
  2. Did you seek out or retain the employee with the intent to develop or conduct business in the forum state?
  3. Did you provide equipment and other assistance for business development or to conduct existing business in the forum state?

If the answer to any of the above questions is “yes,” you could find your company being subject to jurisdiction in the foreign state where the employee is performing the remote work.

Two --> Critical Q&As to Determine that Your Company Should Not Be Subject to the Jurisdiction of a Foreign State...

  1. Did the employee voluntarily move to another state without your (employer’s)   express knowledge or approval?
  2. Does the employee simply live in another state while working remotely for your company for his or her personal convenience?

If the answer to any of the above questions is “yes” then those “yes” answers would be points that are favorable for your company to argue that it should not be subject to jurisdiction in another state where the remote employee happens to live.

broken image

Have a Clear Remote Work Policy In Place!

If you do not wish for your company to be subject to the jurisdiction of a foreign state where an employee telecommuter resides and is performing the work, then your company should have a clear Remote Employee Policy to assist in limiting the potential of the company being sued in other states. The policy should spell out that telecommuting (in another state) is for the personal convenience of the employee, not something mandated by or performed for the benefit of your company. A good, clear policy will better position your company to show that it did not purposefully avail itself of jurisdiction in the remote worker’s state. It would also be a good idea to have all your company rosters up to date and know where each of your employees is geographically located.

Be Sure to Position Your Small Business to Avoid Being Sued in a Foreign State Because of Remote Workers...

Due to the pandemic the number of remote employees has increased and, with the uncertainty of a vaccine, will likely continue to trend upward for the foreseeable future. As such you should take inventory of each of your remote employees and the jurisdictional implications for each state involved. By analyzing the status of each of your remote employees and having a solid remote work policy in place, you can best position your small business to avoid being subject to jurisdiction in states where your company may not have a brick-and-mortar location or other extensive connection.

× Disclaimer: Powell Legal Counsel, Ltd assumes no responsibility for the accuracy or timeliness of information, such as blog and article posts, on this website. This website (including posts) is for informational purposes only and is not legal advice or a substitute for legal counsel. Visitors should not act on this information without seeking professional counsel. The information on this website is not intended to, and does not, create an attorney-client relationship, and you should not send us confidential information until you speak to a Powell Legal Counsel, Ltd attorney and receive authorization to do so. Third-party links on this website are not under the control of Powell Legal Counsel, Ltd and Powell Legal Counsel, Ltd does not endorse those sites and makes no representation concerning the quality, safety, or suitability of that content.