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).
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.
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.
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.