When hiring employees in other states, make legal compliance a priority

Having an employee in another state is perhaps easier than it has ever been.

The prevalence of communication technology, the widespread use of which blossomed almost overnight at the beginning of the pandemic, largely makes this possible. For starters, employers no longer need to arrange in-person interviews (including costly flight and hotel arrangements) for out-of-state candidates. They can send a video conference link instead.

Even more remarkable, for some jobs, employers may not even need to require the candidate to relocate to company headquarters, since the new employee can participate in meetings remotely and otherwise take advantage of available technology to contribute the same as other employees. This benefits the employer because the pool of candidates is expanded to include those who cannot or do not wish to relocate, plus overhead is significantly reduced as items like office furniture, equipment and other forms of support are not needed.

Moreover, the addition of employees in other states may help the company break into new markets. Working remotely may be preferred by employees as well, enabling them to take advantage of a new employment opportunity without having to uproot from their home communities. It's a win-win, so what could possibly go wrong?

Plenty, it turns out. Contrary to the popular saying, this is an area where what you don't know can hurt you. Many employers assume their employment policies apply the same to a remote employee as for other staff. This is not necessarily the case, however, as the law of the state where the employee performs his or her work, not the law where the employer is based, may govern the employment relationship.

This can be true even when an employer has just one employee working in another state. That said, a particular law might be drafted in such a way that it excludes some employers. For example, some expressly state that the law applies only to employers who have a certain number of employees. While some specify 50 or more employees, others expressly cover employers with fewer than ten employees.

Moreover, in counting employees to determine coverage, the law might specify that the requisite number must be employed within the state or perhaps at a particular facility. But if the law does not state a location for the employees who are to be counted for coverage purposes, then all of the employer's employees — those who work within the state as well as elsewhere — must be counted. Employers should begin thinking about the fact that another state or city law might apply at the earliest phase of employment: hiring.

For example, many states and cities across the country have passed laws prohibiting employers from requesting arrest and conviction information on applications or at interviews (so-called “ban the box” laws) or from requesting applicants' wage/salary rates earned in prior employment (known as “salary history bans”).

Use of application forms containing these items to recruit in such states or cities could subject the company to fines or penalties. In addition, while the federal Fair Credit Reporting Act applies across the country, some states impose additional restrictions and notice obligations on employers who obtain background checks during the hiring process. Preemployment drug testing laws can vary significantly from state to state, as well.

While most states do not require employers to excuse test results that are positive for marijuana, some locations require accommodation of medical marijuana use. Once the employer brings the remote employee on board, some deviation from the employer's standard policies and practices may be required.

For example, employers must keep in mind that dozens of states and cities have passed wage laws requiring paying minimum wage and/or exempt salary levels higher than the federal standards. Pay for the remote employee must equal or exceed the wage/salary levels where he or she works, not where the employer is located. Further, while most states only require overtime for hours worked over 40 in a workweek, a handful of states also require it for exceeding a certain number of hours in a workday.

Another legal protection trending in a number of states and cities across the country is mandatory paid sick leave. Under these laws and ordinances, sick time must accrue based on the number of hours worked (typically one hour of sick time for every 30 hours worked) and be paid out when an employee requests it for a covered reason. Meal and break requirements can also vary, with some states having no laws to others mandating meals and breaks at certain times on the threat of significant penalties.

State laws can differ on the timing of paying wages, vacation accrual and payout, business expense reimbursement, wage deductions, jury duty leave, voting leave, parental leave, direct deposit and many other topics. Employers who use noncompetition agreements should likewise not assume that their standard form will be enforceable against a remote employee. While a governing law clause can sometimes help, courts in some states disregard such provisions and instead apply the law of the state where the employee works — a law, of course, that is less tolerant of contractual restraints on a person's ability to earn a living.

Some states also expressly disallow noncompetition agreements for certain categories of employees (generally nonexempt or low-wage positions). And, of course, what courts consider reasonable in terms of duration, geographic reach and activities can vary widely from state to state. Depending on the nature of the employee's position or the likelihood that he or she will be a post-employment competition risk, having an agreement tailored to be enforceable in the state where the remote employee works will be money well spent when and if the need arises.

Too often, being named in a complaint filed with the labor agency or in state court is the first time an employer even considers that another state or city law might provide protections to a remote employee. Don't let that be your wake-up call.

If you have recently added remote employees or are thinking about doing so, you should make an effort to learn about and get in compliance with employment laws in the state and city where the remote employee works. Developing written policies to be applied to remote employees will go a long way toward ensuring legal compliance and avoiding potential liability or fines.

Having legal counsel draft or revise those policies can bring significant peace of mind as well. By taking these steps, employment of remote employees can remain a win-win.

• Germaine Winnick Willett is a member of Ice Miller LLP's Labor, Employment & Immigration Group. She and Ice Miller's other labor and employment attorneys assist employers faced with employment discrimination, harassment, retaliation, wage and hour, contract and other employment-related issues, draft employment policies, and provide advice and counsel regarding employer investigations. For additional information, contact Germaine at (317) 236-5993 or germaine.willett@icemiller.com or any member of Ice Miller's Labor, Employment, and Immigration Group. This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.