Telecommuting is increasingly popular among startups and small businesses, and not surprisingly so. Much has been written extoling the benefits of allowing employees to telecommute, and it’s very much the norm at companies earning high ranks on “best places to work” lists. Above and beyond the feel-good benefits to employees, telecommuting also provides cost-sensitive startups a means by which they can attract and retain better talent in exchange for an offset in overhead expenses like office space and compensation.
However, to the extent that cost is a compelling factor in a startup’s decision to utilize remote workers, I caution them to think again.
One practical problem for an employer based in one state is that it can’t entirely prevent a remote worker from suing the employer in the state where the employee is working. Most laws permit employees to file claims where the work is performed. And, while an employer can try to limit where suits are filed by including a venue provision in a contract, there’s no guarantee the choice-of-venue provision will be enforced. Being hauled into court outside the employer’s jurisdiction will add to the fees and costs of defending the suit, such as additional attorneys’ fees and costs of travel.
Similarly, choice-of-law clauses in contracts, which specify that the law of the state of the employer’s principal place of business will apply, may not always be enforced either. This is especially true when remote workers are involved. This means that employers have to understand the law in all the states where telecommuting employees are working for them, even if just to confirm that a particular law will or will not apply to the employment relationship.
Case in point: A federal court subjected a Virginia company to Pennsylvania’s anti-discrimination law, which applies to employers with 4 or more persons in their employ within Pennsylvania, on the basis of a single employee working remotely from Pennsylvania because that employee hired contractors to service the company’s clients in Pennsylvania.
The best advice for businesses looking to “save” with telecommuting is to understand the law of each jurisdiction and conduct appropriate due diligence before hiring remote workers to work from those states. Knowing if your business will be subject to the laws of another state will allow you to undertake a more meaningful cost-benefit analysis of a possible telecommuting relationship. Ultimately, you may find that once you factor in costs like ensuring your wage-and-hour and other human resources policies comply with the laws of multiple states that the perceived savings of telecommuting employees is non-existent.