Out-of-State Employees Working Remotely – Which State Law Applies?
May 26, 2021
by Paul Salvatoriello, Esq.
Your company is in New York City. Your employee, who has been working remotely for your company since the pandemic, lives and works in Ohio. Suddenly, the employee files a failure-to-promote discrimination lawsuit against your company. While you expect that his claims will be under Ohio law, he makes his claims under laws of the State of New York. Is that possible?
Well, as any experienced employment lawyer will tell you – it depends.
In this article, we are going to go into some detail on the question of which State’s law applies to a remote employee’s claim. You may be surprised to learn that the answer is not as clear cut as it might seem. In addition, we will discuss which State’s taxes apply to a remote worker’s paycheck.
If, after reading this article, you have more questions related to your own company’s remote workers, then we invite you to contact the experienced employment attorneys at Trimboli & Prusinowski, LLC at 973-660-1095, or schedule a consultation online by taking a moment to complete our contact form. We are business-side employment attorneys in New Jersey and New York who have the experience to guide you through any employment matters that your company may face.
Workplace Discrimination Claims by Employees Working Remotely
At first blush, you might assume that a remote employee’s workplace claims would reside in the State in which the employee lives and works. That, however, is not always the case.
The question of which State’s employment laws apply to remote workers is a fact-sensitive one, implicating “choice of law” principles. Choice of law questions, as the name suggests, require a court to conduct an analysis, using a number of factors, to determine which State’s law should apply in a particular situation.
Accordingly, there is no ‘hard-and-fast’ rule saying that remote workers can only apply the law of the State in which they live and work. Rather, the choice of which law applies depends on the circumstances.
- Case Examples Involving Workplace Discrimination Claims by Remote Employees
There are a number of examples of remote employees suing under the laws of the State in which the employer is based, rather than the laws of the State in which they live and work.
For example, in the 2019 case of Rinsky v. Cushman & Wakefield, an individual living and working in Massachusetts for a New York City-based employer filed a workplace discrimination action in Massachusetts, asserting claims under Massachusetts law. After the case was moved to Federal court, the trial court concluded that the employment law of New York City applied to the case, even though the worker lived in and worked remotely from Massachusetts.
On appeal, the Rinsky court affirmed the trial court’s conclusion, finding that New York City law was appropriate because courts should look at whether the “impact of an alleged discriminatory decision was felt in NYC.” The court reasoned that the remote employee worked for the New York City office for 27 years, and that the location of the alleged discriminatory decision (New York City) was relevant to the choice-of-law analysis.
Another example comes out of a 2019 case in New Jersey. In Calabotta v. Phibro Animal Health Corp., an employee who lived and worked in Illinois sued his New Jersey-based employer for failure to promote, and wrongful discharge, under the New Jersey Law Against Discrimination (NJLAD). The court in that case (i) did a conflict-of-law analysis between the discrimination laws of New Jersey and Illinois, (ii) found that a conflict existed, (iii) found that no employment agreement prohibited the use of another State’s law like the NJLAD, and (iv) concluded that the NJLAD could apply to non-resident claims because of the expansive nature of the NJLAD.
Thus, non-residents may still be able to utilize the employment laws of the State in which their employer resides, even if they work remotely from another State.
- Why Would an Employee Seek to Make Claims Under the Laws of Another State?
The reason why an employee may choose the laws of one State over another when filing an employment claim has to do with the types of laws available in each State. Simply put, some States have workplace discrimination laws that are more ‘employee-friendly’ than others.
Taking our remote employee from Ohio as our example, the workplace discrimination laws in the State of New York (or the Human Rights Laws in New York City) may likely provide more avenues for relief than the workplace laws in Ohio. Thus, the employee working remotely from Ohio has a clear incentive to make his or her claim under New York law (where your company is based), even though he lives and works in Ohio.
- How Can Companies Avoid Any Uncertainty?
The way in which employers can avoid getting hung up on an unpredictable choice-of-law analysis in these kinds of situations is to include in any employment agreement (or handbook) a clear and explicit provision indicating which State’s employment laws should apply.
You should consider consulting with an experienced employment attorney on this issue. Given the number of employees working remotely these days, it could save your company a great deal of time and money to discuss the issue with an employment attorney sooner rather than later.
What About Taxes for Remote Employees?
Typically, employees must pay taxes to the State in which they are physically located when they earn income. So, if your company is in State A but your employee lives and works remotely in State B, then the employee must generally pay taxes to State B. That is unless your company is in one of the seven “convenience of the employer” States.
The “convenience of the employer” States are Arkansas, Connecticut, Delaware, Nebraska, New York, Pennsylvania, and Massachusetts. If your company is based in one of those States, then your employees must pay taxes where the company is located.
The fact that New York is one of the “convenience rule” States means that New Jersey residents who commute to New York for work have been paying taxes to New York for quite some time. Even though many New Jersey residents now work remotely from their homes in New Jersey because of the pandemic, they still need to pay income taxes to New York if their company is based in New York.
On that point, there is currently a case that the United States Supreme Court may hear called New Hampshire v. Massachusetts. In that case, the State of New Hampshire is challenging Massachusetts’ recent Covid-19 policy, which mandated a continuation of imposing Massachusetts income tax on New Hampshire residents who used to work in Massachusetts pre-pandemic, even though they now live and work in New Hampshire for their Massachusetts-based employers. We are going to continue to monitor the case to see if the Court decides to hear it, and whether it will have an impact on New York and New Jersey.
Let Us Help You Through the “Choice of Law” Maze When it Comes to Remote Workers
As you can see, there are a number of things to consider with regard to employees working remotely. A seasoned employment attorney can help you every step of the way in navigating an issue involving remote work, as well as any claims of workplace discrimination.
We invite you to call the offices of Trimboli & Prusinowski, LLC. We are employer-focused employment attorneys in New York and New Jersey, and we are currently advising many employers in the wake of the coronavirus pandemic. Let us help you as well. We can be reached at 973-660-1095 or you can schedule a consultation online through our contact form.