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Posted on Wednesday, September 21, 2016

Telecommuting Employees Can Pose Certain Legal Risks For Employers

United Excel Corporation, a Kansas company in the hospital construction business, employed a sales representative to solicit business from hospitals throughout the country.  At some point, the sales representative asked to work out of his home, which was located in Massachusetts.  During the three years that he worked from his Massachusetts home for United Excel, the sales representative never closed any business with hospitals in that state.

After closing a big deal for a hospital located in California, the sales representative got into a dispute over how much commission was owed to him by United Excel.  He sued United Excel in a Massachusetts state court, but the company sought to dismiss the case on the ground that the Massachusetts court had no jurisdiction over the Kansas-based United Excel for a dispute involving a project in California.  From the company’s perspective, the sales representative could well have worked from a home office in Timbuktu, as long as he closed business with hospitals around the United States.  The mere fact that the representative happened to live in a small town in Massachusetts shouldn’t mean that the company could be sued in that town’s courts, United Excel argued.

But a federal appeals court in Massachusetts recently decided that the home office where the sales representative worked was akin to a remote sales office for United Excel.  The court noted that United Excel provided equipment for the sales representative’s home office, and it placed phone calls and sent emails to the sales representative in Massachusetts during his employment tenure. The court said the fact that the sales representative never actually closed a deal for a project located in Massachusetts was not at all determinative, and that his actions in soliciting business all across the country (including Massachusetts) from his home office was enough for that state’s court to have jurisdiction over the employment case.

The key missing ingredient in this case was the fact that United Excel did not have a forum selection clause in its employment agreement with the sales representative dictating where a lawsuit must be filed.  If the agreement had said all disputes must be brought in Kansas where United Excel was headquartered, the Massachusetts case would likely have been dismissed.  All companies, and particularly those who allow employees to work remotely or who otherwise employ people out of state, should strongly consider having a forum selection clause as well as a choice of law provision.

Posted by Declan Leonard, Managing Partner of Berenzweig Leonard, LLP, DLeonard@BerenzweigLaw.com

commercial-item contract, executive orders, FAR changes, FAR clauses, government contracts, non-commercial item contract, pending solicitations, SBA regulations