Hiring a remote employee to work out-of-state may yield unexpected challenges to Massachusetts employers.

The pandemic accelerated the practice of hiring remote employees in different states around the country. In doing so, many employers never considered the question as to which state law may apply to an employment dispute. A recent decision by a federal court in Massachusetts addressed that question and the result should give employers pause on how they manage the remote- employee relationship.

The court case involved an employee from Virginia who worked full-time for a Massachusetts-based corporation for approximately 2.5 years and was subsequently terminated. In response to his termination, the employee sued the employer, alleging age discrimination under MGL 151B (Massachusetts Fair Employment Practices Law) and nonpayment of wages under MGL Chapter 149, Section 148 (Massachusetts Wage Act).

In response to the lawsuit, the Massachusetts employer sought to dismiss the former employee’s claims on the basis that Massachusetts law was inapplicable, and that the employee should pursue the claim in Virginia.

The employer argued that the former employee neither lived in Massachusetts, nor did he or his supervisors work primarily out of the Massachusetts office. The former employee also did not service Massachusetts customers or hold himself out as being based in Massachusetts. They also claimed that neither the offer of employment nor his compensation plan provided for the application of Massachusetts law.

While the employer argued that Virginia was the proper venue as it was the “locus” of the plaintiff’s relationship with his employer, the former employee alleged the claim should be heard in Massachusetts by stating that he communicated regularly with employees in Massachusetts office, traveled to Boston to perform his job duties including to receive training, and that the decisions at issue in the case (i.e. changes to his work assignments, pay structure and his termination) had been made in Massachusetts.

In response to the arguments by the parties, the federal judge determined that Massachusetts had the “most significant relationship” with the individual’s employment, thereby justifying the employee’s ability to use Massachusetts law to allow the case to proceed in Massachusetts.

The judge determined that there is no requirement that the plaintiff reside or work in Massachusetts to be covered by the Wage Act. In reaching that decision the judge looked at factors such as how often the former employee interacted with leadership and employees, regularly received support for the company’s sales tools from employees, and from “time to time” attended required training in Massachusetts.

Massachusetts includes employee protections such as mandatory treble damages under the Wage Act and no cap on punitive damages, and the possibility of individual liability under the Fair Employment Law.

When employees begin to consider their legal remedies, these factors will draw the attention of out-of-state plaintiffs who work for Massachusetts companies. Massachusetts will almost always be the more employee-friendly state.

While there may be many factors that influence a judge in determining the most significant relationship, one key factor appears to be the Commonwealth’s interest in seeing the Wage Act enforced.

Long arm of the law

In reaching its decision, the federal court recognized that neither the Fair Employment Law nor the Wage Act contain any limitation beyond the state’s borders assuming appropriate circumstances between the employer and the employee.

For example, the Massachusetts Commission Against Discrimination (MCAD) has adopted an expansive view, citing its “significant interest” in encouraging in-state respondents to promote work environments free of discrimination.

And there is no provision prohibiting the extraterritorial application of the Massachusetts Wage Act. State and federal courts have defined the “most significant relationship” to include:

• the state where the employer’s headquarters is located,
• the place(s) the worker performed the work,
• the frequency of interactions between the worker and the employer in Massachusetts,
• whether another state has a significant connection to the worker and work performance, and
• whether the contract between the worker and employer has a choice-of-law provision.

Final thoughts

As the pandemic continues to influence the employment relationship, Massachusetts employers may encounter legal battles over which state’s laws apply to remote work.

AIMs member interested in discussing this or any other human resources issue may call the AIM HR Helpline at 800-470-6277.