In a world with an increasingly mobile and remote workforce, onboarding and off-boarding employees are more complicated than ever. Many companies now have single “outpost” employees in various states across the country. Similarly, many companies are encountering key employees asking to move (or moving without asking) to a state where the company previously had no physical presence. Here are some common state law compliance issues employers should watch out for when hiring, firing, and re-locating employees in new states:
Non-competition agreements – often called “non-competes” for short – are valuable tools for employers to protect their legitimate business interests, including their confidential, proprietary, or trade secret information and the goodwill of their business. Reasonable non-competes are generally enforceable in most states in the U.S. However, employers cannot assume that the standard template non-compete agreement they have historically used will be enforceable in any given state they now seek to hire (or transfer) an employee. Some states, such as California, outright ban all non-competes, while others heavily regulate them, imposing specific requirements for enforceability.
And, although courts in most states will enforce contractual choice of law clauses, clauses in contracts that identify what state law will control, not all will. This is particularly true if the state where the employee works prohibits non-compete agreements. For example, since California bans non-compete agreements, if a non-compete with a Michigan choice of law clause is challenged in a California court by a California-resident employee against a Michigan-based employer, the California court will likely find that Michigan law does hold since that would violate California’s public policy against non-competes. With that, the California court will likely strike down the non-compete and refuse to enforce it.
To make matters more complicated, change is the only constant when it comes to state laws regarding non-competition agreements. For instance, as of January 1, 2022, Illinois completely prohibits employers from entering into non-competes with employees earning $75,000 or less per year and mandates specific requirements for agreements with employees earning more than $75,000 annually. Under Washington law, if an employer intends to enter into a non-compete agreement with an employee, the employer must disclose the terms of the non-compete no later than when the employee accepts the offer of employment. Washington, like Illinois, also has strict income-based limitations on non-competes and other requirements for enforceability.
Before asking an employee in a new state to execute a non-compete agreement, employers should consult with their legal counsel to determine whether the draft non-compete will be enforceable in the state in which that particular employee will be working and whether it needs to be revised to comply with that state’s laws, or whether it needs to be scrapped altogether.
Mandatory Time-of-Hire Disclosures and Notices
Many states have put various requirements regarding mandatory disclosures employers must make to employees at the time of hire. For example, in Maryland, at the time of hire, employers must give employees notice of their pay rate and what the regular paydays will be. Similarly, Connecticut employers must give newly-hired employees notice of their: (1) pay rate; (2) hours of employment; and (3) payment schedule. Note: All Connecticut employers must also give their employees written notice of the Connecticut Paid Family & Medical Leave law at the time of hire, which must include employee entitlement to leave under that law, the terms where leave can be used, the opportunity to file a claim for compensation, the prohibition against retaliation for requesting, applying for, or using leave, the right to file a complaint with the labor commissioner for violations. This same written notice must also be provided annually.
These are just a few examples, as many other states have similar (or different) onboarding requirements. Employers should watch out for – and be sure to comply with – all state-specific requirements when onboarding employees.
Final Payment of Wages
Another common variance in state employment laws relates to the timing and contents of the final payment to departing employees. For instance, Illinois employees must be paid any accrued but unused paid time off upon termination of employment. In Oregon, if an employee quits with less than 48 hours’ notice (excluding weekends and holidays), their final paycheck is due the sooner of 5 business days or the next regular payday. However, if the employee quits with at least 48 hours’ notice, their final paycheck is due on their final day of work. If an employee is fired or the employer and employee mutually agree to the termination, then the final paycheck is due by the end of the next business day.
As demonstrated by these examples, when off-boarding employees, employers should make sure that they are issuing final paychecks consistent with the laws of the state in which the employee worked.
Employers seeking to hire, transfer, or fire employees in new states, or states other than their primary states of operation, should reach out to an experienced employment attorney for guidance.
About the Author
Angelina (Lina) Delmastro (Associate) is an employment attorney in Dickinson Wright’s Detroit office. She focuses her practice on both employment litigation and counseling business owners and human resources professionals on the federal and state employment laws that impact their business.