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Massachusetts Telecommuters and Jurisdiction Over Out-of-State Employers
Many employees now telecommute or work from home for businesses that may be down the street or across the country. When disputes arise in employment arrangements in which the company and its employee are in different states, the question of jurisdiction arises.
The U.S. First Circuit recently considered such a case. The plaintiff in Cossart v. United Excel Corporation was a salesman working from his Massachusetts home for a company incorporated and headquartered in Kansas.
The company had recruited the plaintiff for the sales position. The plaintiff had traveled to Kansas to negotiate his employment contract, which was memorialized in a letter that stated the company would provide the plaintiff with necessary equipment to work from his home. The company also registered a general contracting sales office in Massachusetts. When the parties subsequently changed the contract to be commission-only, the agreement again indicated the plaintiff would work from home.
The plaintiff made calls, sent emails, and had numerous meetings while trying to make deals in Massachusetts. He never made a sale in Massachusetts, but he did identify a potential client in California. He sent emails, made phone calls, and traveled to California for meetings. Before the contract was executed, the plaintiff contacted the company president, claiming the company would owe him a commission of $219,000. The president refused to agree to the deal unless the plaintiff accepted just $62,000.
The plaintiff refused, and the company rescinded the offer to the client. The president then fired the plaintiff. The plaintiff sued the company and its president in Massachusetts state court, alleging violations of the Massachusetts Wage Act. The defendants removed the case to federal court, based on diversity jurisdiction, and moved to dismiss, based on lack of personal jurisdiction. The district court dismissed, and the plaintiff appealed.
A Massachusetts court can exercise jurisdiction over the defendants only if the case meets the requirements of the Massachusetts long-arm statute and the Due Process Clause of the Fourteenth Amendment.
Pursuant to the long-arm statute, a court can exercise personal jurisdiction over a person for a cause of action arising from that person’s transaction of business in Massachusetts. “Transacting any business” is construed broadly. The court uses a “but for” test to determine if the transacted business was the cause of the harm.
The defendant company recruited, hired, and retained the plaintiff as an employee, knowing he would work in Massachusetts. The company also registered a sales office in Massachusetts. The defendant president personally negotiated the contract and signed the registration for the sales office.
The District Court found that, since the plaintiff had failed to secure any Massachusetts business for the company, he could not show that it had successfully transacted business there. The Circuit Court noted that previous case law did not require that a defendant be successful in its business efforts within the state. The Circuit Court found that the defendant company’s actions constituted “transacting business” within Massachusetts. The Circuit Court also pointed out that case law supports subjecting a corporate officer to personal jurisdiction when they acted as “primary participants” in the company’s actions. Furthermore, since the claims arose from the plaintiff’s efforts in securing the California deal, and those efforts had occurred in Massachusetts, the claim arose from the defendants’ transaction of business within the state.
The court also applied a three-prong test to determine the Due Process Clause allowed jurisdiction. First, the court had to determine if the claim arose from or related to the defendant’s activities in Massachusetts. The defendants argued that the claim was not related to Massachusetts because it involved a contract to be performed in California. Furthermore, the decision not to proceed with the contract or pay the commission was made in Kansas. The Circuit Court rejected the argument, finding that the action arose from the breach of the employment contract. Furthermore, the plaintiff had performed much of the work leading to the potential California deal in Massachusetts. The plaintiff called the president to discuss the California deal from Massachusetts, and when the company refused to pay the commission, it did so in phone and email conversations with the plaintiff, who was in Massachusetts. The claims sufficiently related to the defendant’s contacts with Massachusetts.
In the second prong, the court considered whether the defendant’s contacts with Massachusetts “represent a purposeful availment of the privilege of conducting activities” in the state. Here, the company recruited a Massachusetts resident for an employment agreement that contemplated he would be working from Massachusetts. The company provided office equipment and registered a sales office in the state. The plaintiff performed a significant amount of work for the defendant company in Massachusetts.
Finally, the court must determine if the exercise of jurisdiction over the defendants is fair and reasonable, considering several factors. Here, the court found nothing that would indicate it would be unfair or unreasonable to exercise jurisdiction over the defendants.
The court found that both the long-arm statute and the Due Process Clause allowed the Massachusetts court to exercise jurisdiction over both defendants, and it reversed and remanded for further proceedings.
Telecommuting can be beneficial to both employers and their employees, but both should consider the potential risks involved. The law around telecommuters and jurisdiction is still developing. It is not always clear when the state where the employer is located can exercise jurisdiction over a telecommuting employee, when the state where the employee is located can exercise jurisdiction over the employer, and when the presence of a telecommuting employee in a state will allow that state to exercise jurisdiction over the employer.
If you have a business dispute involving a telecommuting employee, the Law Offices of Richard Mucci can assist you. Call (781) 729-3999 to set up a meeting with a skilled Massachusetts business litigation and employment law attorney.