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Jurisdiction to Pursue Non-Compete Claims in the Age of Remote Employees

With remote access technology becoming standard across industries, companies readily engage a multi-state workforce, with many employees residing outside of the employer’s home state.  While an expanded access to talent may be beneficial, one drawback is the ability to enforce restrictive covenants with out of state employees in a consistent manner and in the employer’s home state.  The case of Numeric Analytics, LLC v. McCabe, et al., offers insight into that issue. 2:16-cv-00051-GAM (E.D. Pa. 2/9/16).

Background

Numeric Analytics, a web analytics and marketing consulting company based in Pennsylvania, engaged employees working remotely in various states across the country.  Its President left the company to start a competing business and in the process, recruited four other employees to join her.  All the employees worked remotely in other states and had signed offer letters that included Non-Solicitation Agreements.  Those agreements provided that Pennsylvania law controlled, but lacked any forum-selection provision.  Numeric brought suit in Pennsylvania against its former employees seeking to enforce the Non-Solicitation Agreements and alleging various tort claims as well.

Jurisdiction Analysis

After noting that it did not have general jurisdiction over the non-resident defendants, the court proceeded with a specific jurisdiction analysis.  Numeric alleged that the employees directed their activities to Pennsylvania because they “signed employment contracts with a Pennsylvania company, continuously communicated with a Pennsylvania company about their employment, ran all invoices for the work they performed through Pennsylvania, and were paid by their Pennsylvania employer.” (Id. at 6-7).  Additionally, Numeric presented evidence that the employees needed to contact the Pennsylvania office to resolve payroll, benefits, or other problems throughout the course of their employment; that medical coverage, medical benefits, and retirement plans were administered from Pennsylvania; that each employee’s timekeeping, billing of customers, and email were managed by the Pennsylvania office; and that Numeric paid Defendants’ salaries using a Pennsylvania bank. (Id. at 7).

The court held that all of those factors “are characteristic of a traditional employer-employee relationship, except for location.” (Id.).  The court decided that the claim for breach of the restrictive covenant arose out of and related to the Defendants’ contract, and that exercising specific jurisdiction over them with respect to that claim was fair and reasonable given the circumstances.  The court remarked, however, that the lack of a forum selection clause in the contract made this a much more difficult issue, and that such a clause “would be the preferred method of resolving such ambiguity.” (Id. at 8).  The court declined to exercise specific jurisdiction with respect to all of the tort claims (except for the fiduciary duty and tortious interference claims against the former president), finding that the tortious conduct on those claims was not directed at the forum nor caused sufficient injury in the forum in a manner sufficient to support specific jurisdiction.

Takeaways

As the court sums up: “[I]n a business with its operations and personnel widely distributed across state or even national boundaries, questions of jurisdiction can become significantly more complicated.” (Id. at 2).  One obvious solution to this problem is to have a forum selection clause in all employment agreements, especially those with out-of-state employees.  Such a provision will usually control the analysis and enable a company to seek to enforce the agreements in its preferred locale.   This case should serve as a cautionary tale for employers with remote employees and should remind all legal and human resource departments to check on the contracts they currently have with remote employees to ensure they contain forum selection clauses.

©2020 Epstein Becker & Green, P.C. All rights reserved.National Law Review, Volume VI, Number 77

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About this Author

Anthony J. Laura, Epstein Becker Green, Workforce Management Attorney, Mortgage Industry Lawyer
Member

ANTHONY J. LAURA is a Member of the Firm in the Litigation and Employment, Labor & Workforce Management practices, in the Newark office of Epstein Becker Green.

Mr. Laura's experience includes:

  • Representing financial services industry clients (such as banks, mortgage lenders, and servicers) in the defense of both individual and putative class action lender liability suits, with a particular emphasis on consumer class action litigation and the defense of claims for predatory lending,...

973-639-8267
Matthew Savage Aibel, Epstein Becker Green, Trade Secrets Attorney, Breach of Non-Compete Agreements Lawyer
Associate

MATTHEW SAVAGE AIBEL is an Associate in the Litigation and Employment, Labor & Workforce Management practices, in the New York office of Epstein Becker Green.

Mr. Aibel:

  • Assists in the representation of clients in complex commercial litigation, business disputes, and breach-of-contract matters

  • Provides assistance with litigation matters involving the breach of non-competition and non-solicitation agreements, the misappropriation of trade secrets, and unfair competition

  • Assists in the representation of employers in federal and state court and in mediation and arbitration proceedings on labor and employment matters involving discrimination, harassment, retaliation, whistleblowing, and wage and hour disputes

  • Aids health care companies in litigation arising under ERISA and other related disputes

  • Advises employers about issues and policies related to social media and the online conduct of employees

Prior to joining Epstein Becker Green, Mr. Aibel served as a Legal Intern at the largest labor union representing officers of the New York City Police Department. In this role, he helped with state and federal litigation, collective bargaining issues, employee handbooks, and city administrative board hearings.

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