Your business is located in Maryland, so you make sure to track MD labor laws to remain in compliance with new legislation. You’re all set, right? Well, that depends. Do you employ team members working remotely from out of state? If so, you may be unaware of potential risks to your business. Below, our attorneys explain what you need to know.
As a business expands and opens locations in multiple states, or employees are permitted to work remotely from different states, variances in state employment laws may pose a risk to business owners unless they keep abreast of both federal and individual state legislation. Every state imposes its own business requirements and employment laws that apply to employees who are working in that state, whether they are working in person or remotely. Employment laws that vary from state to state include:
- noncompete agreements;
- definitions of independent contractors;
- specific leave laws, minimum wage;
- wage statement disclosures; and
- final payment requirements.
Even if a business does not have physical locations in multiple states but employees are permitted to work remotely, the business must comply with each state’s laws. As a result, many employers are left wondering what their legal obligations are for remote employees working out of state, and how to remain compliant.
Noncompete agreements vary widely from state to state. Recently, California expanded its noncompete laws and required employers (from any state) to send all current and former employees that work in California a letter notifying them that their noncompete is void, regardless of where it is signed. Should an employer attempt to enforce a voided noncompete, the law also established civil penalties of up to $2,500 per violation.
For example, if two employees of a Maryland company (“Employee A and Employee B”) signed a Maryland noncompete agreement when they joined the company in 2022, and Employee A works in Maryland while Employee B works remotely from California, Employee B’s noncompete is now void due to the change in California law, while Employee A’s noncompete remains valid and enforceable.
California is not the only state to significantly limit the use of noncompetes; Maryland imposed stricter requirements for noncompetes in the most recent state legislative session. In addition, California, Colorado, Minnesota, North Dakota and Oklahoma outright ban virtually all noncompetes.
What is the best approach to managing noncompetes and avoiding penalties for non-compliance? Business owners should review their current noncompete agreements and prepare for the possibility that noncompetes may be void in states where they have remote employees. Employers should also identify key areas where the use of noncompetes is critical, and consider other options for protecting their interests, such as:
- agreements preventing the unauthorized use or disclosure of trade secrets;
- Proprietary Information and Confidentiality Agreements; and
- Non-Solicitation Agreements.
Businesses may also discourage unfair competition by considering alternative compensation structures. This could include implementing longevity bonuses, phantom stock plans and seniority-based pay raises to help deter departures of senior employees who may pose a potential competitive threat due to having greater access to proprietary information and relationships.
Other considerations employers often overlook when permitting employees to work remotely from other states include:
- state overtime laws;
- paid leave laws;
- tax implications (depending on where the employee is physically located when performing work);
- unemployment and workers’ compensation insurance; and
- whether the employer is required to cover employees’ remote work expenses.
What is the bottom line? Employers should regularly work with their attorneys and tax advisors to ensure multistate compliance, in addition to keeping their employees informed of state and local regulations and laws.
For more information, contact the Davis, Agnor, Rapaport & Skalny attorney with whom you typically work, or one in our Labor & Employment Practice Group.
