New Technology New Jurisdictional Rules?

Technology advances continue to test the limits of legal principles developed when a concept like the Internet was considered science fiction.  A recent case from a federal district court in Pennsylvania illustrates this point.  

Several employees of Numeric Analytics, a company based in Pennsylvania, opted to leave and start a competing business.  Numeric filed suit in Pennsylvania, contending that the former employees violated non-compete agreements, as well as their duty of loyalty by their actions.  

As one might expect, Numeric filed the lawsuit in Pennsylvania.  And that’s where it got interesting.  Numeric named five former employees as defendants, including its former president, Ann McCabe.  But those former employees were spread out among four different states — Colorado, Ohio, Wisconsin and Virginia.  And each contended that the Pennsylvania based court lacked jurisdiction over them.  

Their argument wasn’t frivolous.  Our court system is based on the notion that defendants can’t be dragged into foreign courts that have no connection to the defendant’s day to day activities.   This notion takes up weeks of the average first year law student’s Civil Procedure class.  And like so many things, this concept was easier back in the days before telecommuting.  Fred Flintstone worked at a rock quarry.  When his day was finished, he slid down the dinosaur’s tail and headed home with Barney.  He was physically present.  So if he’d been sued by his boss there wouldn’t have been much question about jurisdiction. 

But today, with the ability to work remotely, the question is tougher.  And courts have gone both directions.  But in this case, the court split the baby a little bit.  It found that the Pennsylvania court had jurisdiction over the breach of contract claims.  In the court’s view, the remote employees knew what they were getting into when they signed the employment contract.  In addition, the employees regularly communicated with the back office operations in Pennsylvania about any number of routine items such as payroll and benefits.  It simply wasn’t unfair to require them to appear in Pennsylvania.  

But on the somewhat more amorphous question of “breach of loyalty” the court declined to exercise jurisdiction over the claims involving four of the five employees. In tort claims, as opposed to contract claims, the question is whether the “effect” of the conduct impacts the forum state.  In the case of the employees other than former president McCabe the court found the effects did not impact Pennsylvania to any great degree.  The employees’ new business was not located in Pennsylvania, and its business wasn’t centered there in any way.

As to the former president, however, the court found her status, rather than her conduct bound her “inextricably” to Pennsylvania.  She was required to defend both claims there.

The lesson for employers is simple.  You don’t employ Fred Flintstone. And don’t assume you’ll be able to try a case against your telecommuting employee in the state where your company is headquartered.  The best way to take the guesswork out of it is to include a provision in the contract stipulating that all litigation arising from the employment relationship takes place in a selected jurisdiction.  Such clauses are almost always enforceable, and it eliminates the problem faced by Numerics.