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By Allison M. Gatrone
“You were late paying me my final check and benefits, so I filed a claim for them in West Virginia where I work,” said Cora, a manager for a health-care staffing company.
“I don't think that was correct,” said Byron, the employer's lawyer. “Our employment contract with you stated that any claims are covered by Texas law, where we are located.”
FACTS:A manager who teleworked in West Virginia claimed that her employer did not pay her wages and benefits on time after she was terminated. The employer, a Texas company that provided health-care workers for federal contractors, claimed that the employee could not file claims in West Virginia because although she teleworked from West Virginia, she remained a Texas employee and her remote work in the state did not cause the employer to qualify under West Virginia law.
When the employee was hired, the employment contract stipulated that the employment relationship was governed by Texas law and that the employee was an employee in the employer's Texas headquarters. The employee would manage health-care workers in Texas and Arizona.
The employer obtained a certificate to transact business in West Virginia but did not manage any health-care providers in the state.
After the employer terminated the employee without cause, paying her all the wages and benefits that she was owed, the employee filed wage-payment claims in West Virginia. She claimed that the employer violated West Virginia Code Section 21-5-4(b) by failing to timely pay her the wages and benefits.
The employee claimed that the employer transacted business in West Virginia because she worked from her West Virginia home. She also claimed that the employer withheld income tax and remitted it to West Virginia and paid West Virginia unemployment insurance on her behalf.
A West Virginia circuit court ruled that the court did not have jurisdiction over the wage-payment claims because the employment contract was governed by Texas law. The employer also did not conduct a minimal amount of business in the state because it did not have health-care workers in the state, the court said.
An employee who telecommuted filed wage-payment claims in the state where she worked.
The employee appealed, claiming that the court had jurisdiction over the employer because she performed her work in West Virginia and because the employer obtained a certificate to transact business in the state and conducted enough business in the state to qualify as subject to West Virginia law.
ISSUE: Could the West Virginia court rule on the employee's wage-payment claims?
DECISION: The West Virginia circuit court could not rule on the employee's wage-payment claims because her employment contract was governed by Texas law, the West Virginia Supreme Court of Appeals ruled. The court did not have jurisdiction over the employee or the employer because the employer did not conduct a minimum amount of business in the state to trigger jurisdiction, it also ruled.
Simply obtaining a certificate to transact business in a state does not mean that the employer did in fact transact business, the court said. The employer did not transact enough business in West Virginia to trigger jurisdiction because it did not obtain the certificate to purposefully gain benefits or privileges in the state. The employer also did not have any health-care staffing contracts in West Virginia and the employee did not manage any health-care providers in the state for the employer, it said.
The employer did not benefit from the worker's office being in West Virginia, and the employer designated the employee as a Texas employee who teleworked from West Virginia, the court said. Therefore, the employer remained solely a Texas employer and was not under West Virginia law. The circuit court correctly ruled that it did not have jurisdiction over the employment contract, the employer or the employee, the state supreme court ruled (Eddy v. Ingensis Inc.,W.Va., No. 13-0888, 4/25/14).
POINTERS: Employers face some difficult issues concerning employees who live in one state and work in another. While these employees generally are subject to income tax withholding tax rules of the state in which they work, the type and extent of their activity needs to be tracked carefully, as their work may trigger for the employer unintended tax and other compliance issues in the states involved.
Creating nexus in a state is the key to determining whether a business has enough presence to obligate it to register for tax purposes.
Employers especially need to determine whether telecommuting employees' activities in a state require them to withhold income taxes for that state and pay unemployment insurance to that state.
To determine the state or states where tax requirements can come into play, payroll departments should consider the state where work was performed, any state residency and nonresidency rules, reciprocity between states for employment taxes and employee activity that could create a business connection.
For more information, see PAG's “Employment Activities Creating Nexus” chapter.
This analysis illustrates how courts resolve pay-related disputes. The names and dialogue are fictitious.
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