In March 2020, state and local governments across the United States began to issue shelter in place orders to slow the spread of COVID-19, often mandating that companies allow work to be performed remotely to the greatest extent possible. Even as restrictions were eased over the summer months, officials continued to recommend or require remote work arrangements. As cases surge again, some employers have already announced plans to permit remote work to continue well into 2021 and even beyond.
Of course, remote work is not new, and many of its challenges such as providing remote work tools, maintaining productivity, staying connected with coworkers, and managing effectively from a distance are well known to employers. (Some of the top challenges facing employers in the shift to remote work are explained here.)
Remote work spurred by COVID-19 has introduced new wrinkles. First, because the switch to remote work was driven by government mandates and public health concerns, employers permitted remote work for roles that had not been granted such flexibility in the past. Those same public health concerns frequently prompted people not to work from their primary “home” residences, but to relocate to other areas to be with family or friends, or where the perceived risk of infection was lower, or just somewhere more comfortable. As the pandemic has continued, some workers have remained at these secondary locations, or made plans for where they might want to reside now that it seems a strong internet connection is more important than a regular office presence. Because the change was sudden, there was less time to plan for and track the choices made by individual workers.
Now that remote work has become the new normal for more companies, it is time to consider whether there are long-term consequences to these “temporary” moves and whether there is a need for restrictions on those who now believe they can perform their jobs from any location in the world.
One potential mechanism for assessing the issue is to invoke the oft-used handbook-requirement that workers keep the company apprised of any changes to contact information. Employers may want to recirculate that policy to ensure all are on notice that they may face consequences for failure to abide by the policy. Employers may also want to revise their policies to require employees to disclose the location(s) from which they are physically performing their work, or even to prohibit work from some locations without obtaining prior approval.
The reason to exercise this caution is that remote work - whether known or unknown - can unwittingly subject companies to the complexities of multi-state employment. These complexities encompass a wide range of legal issues, including jurisdictional, tax, business formation, and leave issues, each with its own subset of concerns. Indeed, wage and hour statutes alone present a host of issues. Take for instance overtime and meal breaks. Some state statutes provide workers with overtime and meal and rest breaks based on where the work is performed. See McPherson v. EF Intercultural Foundation, Inc., 260 Cal.Rptr.3d 640, 664, 47 Cal.App.5th 243, 274 (Cal.App. 2 Dist., 2020) (holding that California's wage laws governing nonexempt employees, including overtime, meal and rest breaks, apply as the employee performs work within the state). Thus, an unwitting employer could inadvertently violate a state statute regarding rest breaks.
This issue is not limited to non-exempt employees either. Just as states may set minimum wage rates that are higher than those imposed by the FLSA, they may also set minimum salary levels for exempt employees. By way of example, in 2020 the minimum annual salary level under the FLSA is $35,568, but under New York law it ranges from $46,020 to $58,000, depending on where the employee works. Salaries do not need to be adjusted for periodic work performed in a different locale. After a sufficiently long relocation, however, an exempt employee may become subject to the law of state where the work has been performed. There is no bright line rule when that threshold is reached.
The same analysis extends to wage rates. Generally speaking, a non-exempt employee is entitled to the minimum wage of the jurisdiction where the work is performed, and some states and municipalities require a higher minimum wage than is due under federal law. Some jurisdictions can provide for significantly higher rates, which many employers may not recognize as a “minimum” wage.
In the past, this was rarely a concern. The jobs for which remote work was permitted often paid above minimum wage, and the location from which the work would be performed was known at the time the arrangement was made. If work needed to be performed from a different location with a higher wage requirement, an arrangement could be made to change the pay rate for that time.
While most remote workers will still receive much more than the minimum wage, there are some jurisdictions where the minimum wage is so high that it may creep into a higher wage category and catch an employer unaware. Moreover, the expansion of roles permitted to work remotely coupled with worker movement in response to COVID-19 increases the potential for paying the wrong wage rate. Consider this example: Phoenix, Arizona has one of the highest concentrations of call center work, which was generally performed in a busy office environment before the pandemic. Now, however, more of this work is permitted to be performed remotely. A worker earning the minimum wage in Arizona ($12 per hour) who moved to be with family in California is likely entitled to the higher minimum wage rate ($13 per hour) set by that state. If the worker moved to one of the California municipalities with a higher rate, like Los Angeles County ($15 per hour), it is likely that amount would be due. See Sullivan v. Oracle Corp., 254 P.3d 237, 241, 127 Cal.Rptr.3d 185, 190, 51 Cal.4th 1191, 1197–98 (Cal. 2011) (“California's overtime laws apply by their terms to all employment in the state, without reference to the employee's place of residence.”).
Here are some additional issues to keep in mind:
- Wage and Hour. Multiple states have their own overtime laws that do not mirror the Fair Labor Standards Act. For instance, in Colorado an employer is required to pay overtime to an employee who exceeds twelve hours of work in a work day or twelve consecutively worked hours. Thus, a remote worker's relocation to Colorado could create new overtime requirements of which the employer was not previously aware. Other issues may arise with properly recording a remote worker's time or permitting remote workers specific meal and rest breaks, all of which may be dictated by state law. Employers should have remote work policies in place to address these concerns. Similarly, minimum wage may be an issue for some remote workers, especially if they move to jurisdictions with a higher than average minimum wage.
- Travel Time. Employers sometimes request that remote workers periodically return to the office for business reasons. The employer may be obligated to reimburse travel time and expenses if the worker has relocated somewhere more distant. Employers should ensure that their policies are clear on whether this travel time is reimbursable.
- Final Pay. The law regarding when an employer has to provide separated employees with final pay varies from state-to-state and can carry fines for any potential violations. Thus, employers must ensure that they follow these rules for any remote workers whom they separate.
- Paystubs. Some states have specific paystub rules that employers must comply with that outline all of the information that an employer must include in a paystub. In some states, such as California, violations of these rules can lead to draconian fines and present significant liability for unwary employers. A recent decision in California, Ward v. United Airlines, 9 Cal.5th 732 (S.Ct. Cal. June 29, 2020), held that these strict paystub rules do not apply just because an individual performed a week of work in the state but left open the possibility that the state might have an interest in applying its rules to one who had been performed work there for some longer period of time.
- Employees v. Independent Contractors. States vary in how they draw distinctions between independent contractors and employees. Independent contractors who work remotely may avail themselves of local rules that make it easier to establish their status as employees entitled to protection by different work rules.
- Harassment Training. More than one-third of the states have a law mandating sexual harassment training, with the specific substantive requirements, target audience, duration, and frequency varying among jurisdictions. Connecticut, for example, requires that all supervisory employees complete harassment training. If there are three or more employees in the state, then obligation extends to non-supervisory employees as well. This is in addition to the potential for different types of harassment or mistreatment of remote workers, and the challenges of maintaining an effective system for reporting and investigating complaints.
- Paid Sick Leave. Some states and cities have their own sick leave laws that require an employer to provide sick leave in excess of what it is already providing to its employees. Indeed, such laws have proliferated in response to COVID-19.
- Venue or jurisdictional implications. A company may find itself subject to the venue and jurisdictional rules of any state where it employs a remote worker.
- Taxes. The “physical presence” rule requires employers to withhold at the rate for the state in which the work is performed, even if the business is headquartered in another state. Some states require withholding for both locations. As a result, a remote worker who performs work in a state may be obligated to pay tax there and might also create new tax withholding obligations for the employer.
- Business formation and registered agent. If a remote worker relocates to a state in which his or her employer was not previously doing business, that new state may view the employer as conducting business in that state. This could require the employer to register to do business in that state or retain a registered agent for service in the state.
- Professional Licenses. Professional licenses, like law licenses, can impose state-specific requirements. To the extent an employee with a state-specific license relocates to another state, there could be implications with the employee's professional license and ability to practice in that profession. Also, it may subject the employee to differing requirements or ethical obligations.
- Benefits/Insurance for Employees. A remote worker's benefits or health insurance coverage may be affected by the remote worker's relocation to a different state, depending on how the benefits or health insurance is structured.
- Insurance for Employer. Similar with the concern regarding benefits/insurance for employees, some insurance policies held by the employer may be affected if a remote worker is working from a state not previously contemplated, or potentially not permitted, by the relevant insurance policy.
- Data Privacy. While remote work alone can create data privacy concerns, these issues may be further complicated by the relocation of a remote worker. Moreover, this becomes a much more significant concern if a remote worker relocates to a foreign country, such as one in the European Union, that may potentially subject the employer to differing and unanticipated data privacy obligations.
- Workers Compensation. Given that workers compensation is state-specific, a work-related injury for a remote worker could create confusing and difficult issues for employers, most notably when the employer was not aware of the employee's relocation to another state.
- Relocation Expenses. If an employer traditionally covers relocation expenses, it may want to review its policies to determine how they might be read by a remote worker who chooses a voluntary relocation to ensure there is no ambiguity that the remote worker may be entitled to relocation expenses.
Employers should be cognizant of these issues and take steps to address them before they become significant problems. To do so, employers should formulate a formal remote work policy to address specific concerns that may arise from remote work relocation or revise existing remote work policies to address these concerns. Seyfarth Shaw will continue to publish content about some of the unusual employment-related issues arising from responses to COVID-19 to assist employers in formulating and revising these policies and will provide a more in-depth analysis of some of the issues raised by this checklist. In the meantime, if you have inquiries on these topics please reach out to the authors of this Legal Update.
Originally Published By Seyfarth Shaw, November 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.