OUT-OF-STATE TELECOMMUTERS: ASSESSING THE RISK

<body topmargin=0 leftmargin=0 marginheight=0 marginwidth=0> <table cellpadding=0 cellspacing=0 border=0><tr> <td valign="top" colspan=2 height=90 BGCOLOR="#006699" TEXT="#080000" bgproperties="fixed" background="064285a1erlcgo.png"> <div> <FONT SIZE="5" COLOR="#FFCC66" FACE="Arial" ><B>The Telework Coalition</B></FONT><B>   </B></div> <div> <B>Enabling Virtual, Mobile, and Distributed Work through Education, Technology, and Legislation</B></div> </td> </tr><tr> <td valign="top" width=210 BGCOLOR="#FFCC66" TEXT="#080000" background="063d2c00dkelyh.png"> <div> <A HREF="index.htm" TARGET="_top" TITLE="The Telework Coalition"><U>Home</U></A></div> <div> <A HREF="id296.htm" TARGET="_top" TITLE="Membership Sponsorship Opportunities"><U>Membership & Sponsorship Opportunities</U></A></div> <div> <A HREF="id208.htm" TARGET="_top" TITLE="Our Sponsors"><U>Our Sponsors</U></A></div> <div> <A HREF="id270.htm" TARGET="_top" TITLE="TelCoa in the News"><U>"TelCoa in the News"</U></A></div> <div> <A HREF="id17.htm" TARGET="_top" TITLE="Calendar"><U>Calendar</U></A></div> <div> <A HREF="id282.htm" TARGET="_top" TITLE="TelCoa / ACP Event"><U>TelCoa / ACP Event</U></A></div> <div> <A HREF="id19.htm" TARGET="_top" TITLE="Contact Us"><U>Contact Us</U></A></div> <div> <A HREF="id259.htm" TARGET="_top" TITLE="Strategic Alliances"><U>Strategic Alliances</U></A></div> <div> <A HREF="id278.htm" TARGET="_top" TITLE="Business Continuity Planning (COOP)"><U>Business Continuity Planning (COOP)</U></A></div> <div> <A HREF="id294.htm" TARGET="_top" TITLE="Avian Flu and Pandemic Information and A"><U>Avian Flu and Pandemic Information and Articles</U></A></div> <div> <A HREF="id156.htm" TARGET="_top" TITLE="Virtual Call Center Sponsors"><U>Virtual Call Center Sponsors</U></A></div> <div> <A HREF="id157.htm" TARGET="_top" TITLE="Virtual Call Centers "><U>Virtual Call Centers </U></A></div> <div> <A HREF="id20.htm" TARGET="_top" TITLE="Board of Directors and Advisory Board"><U>Board of Directors and Advisory Board</U></A></div> <div> <A HREF="id158.htm" TARGET="_top" TITLE="The Telecommuter Tax Fairness Act "><U>The Telecommuter Tax Fairness Act </U></A></div> <div> <A HREF="id223.htm" TARGET="_top" TITLE="TelCoa Awards"><U>TelCoa Awards</U></A></div> <div> <A HREF="id18.htm" TARGET="_top" TITLE="Our Vision and Mission"><U>Our Vision and Mission</U></A></div> <div> <A HREF="id40.htm" TARGET="_top" TITLE="Telework in the News"><U>Telework in the News</U></A></div> <div> <A HREF="id35.htm" TARGET="_top" TITLE="Federal, State, Regional News, Legislat"><U>Federal, State, & Regional News, Legislation, and Programs</U></A></div> <div> <A HREF="id263.htm" TARGET="_top" TITLE="Telework Tools "><U>Telework Tools </U></A></div> <div> <A HREF="id33.htm" TARGET="_top" TITLE="Telework Facts "><U>Telework Facts </U></A></div> <div> <A HREF="id42.htm" TARGET="_top" TITLE="You Should Know"><U>You Should Know</U></A></div> <div> <A HREF="id43.htm" TARGET="_top" TITLE="Broadband"><U>Broadband</U></A></div> <div> <A HREF="id27.htm" TARGET="_top" TITLE="Environmental Information and Fact Sheet"><U>Environmental Information and Fact Sheet</U></A></div> <div> <A HREF="id90.htm" TARGET="_top" TITLE="Health, Safety Telework"><U>Health, Safety & Telework</U></A></div> <div> <A HREF="id105.htm" TARGET="_top" TITLE="Telework Jobs and Opportunities"><U>Telework Jobs and Opportunities</U></A></div> <div> <A HREF="id337.htm" TARGET="_top" TITLE="Other Jobs"><U>Other Jobs</U></A></div> <div> <A HREF="id34.htm" TARGET="_top" TITLE="Contributing Partners"><U>Contributing Partners</U></A></div> <div> <A HREF="id41.htm" TARGET="_top" TITLE="Related Links "><U>Related Links </U></A></div> <div> <A HREF="id25.htm" TARGET="_top" TITLE="Reference"><U>Reference</U></A></div> <bR> <div>  </div> <bR> </td> <td valign="top" height=390 BGCOLOR="#FFFFFF" TEXT="#080000"> <div> <I>OUT-OF-STATE TELECOMMUTERS: ASSESSING THE RISK </I></div> <bR> <div> By: Charles F. Knapp </div> <div> Faegre & Benson, LLP </div> <div> © 1999 Faegre & Benson </div> <bR> <div> The existence of out-of-state telecommuters poses a number of interesting legal issues for employers, </div> <div> particularly employers who do not otherwise employ workers in other states. Employers who allow such </div> <div> arrangements may unknowingly expose their company to additional employment and tax law obligations.</div> <div> Virtually every state has a number of employment law statutes that prohibit certain conduct and impose special </div> <div> obligations on employers, including but not limited to non-discrimination statutes, leave laws, employees rights </div> <div> laws (e.g., drug testing, monitoring, and background investigations), workers' compensation statutes, and </div> <div> unemployment compensation statutes.Whether these statutes apply to employers whose only </div> <div> contact with the state is that they have one or more employees telecommuting from residences in that state </div> <div> will depend on the specific statutory definitions. As a general rule, however, employers should assume that </div> <div> allowing an employee to telecommute from another state on a full-time basis will subject those employers to the </div> <div> employment law statutes of the other state with respect to the telecommuting employee. Therefore, for example, an </div> <div> employee telecommuting from her home in Chevy Chase, Maryland may have different leave of absence rights than </div> <div> her co-workers officing out of the employer's Arlington, Virginia corporate headquarters. </div> <bR> <div> In addition to statutory law, states also have their own body of court-created law (or “common law”) that impose </div> <div> varying rights and obligations regarding a variety of employment law issues, such as whether employees may </div> <div> be discharged “at will,” whether employees have a right to privacy, and circumstances under which a non competition </div> <div> agreement will be legally enforceable. While I am not aware of any reported decisions directly addressing this </div> <div> issue, related case law suggests that courts will hold employers to the common law standards developed in the </div> <div> state in which an employee telecommutes on a full-time basis. Therefore, for example, a Spokane, Washington </div> <div> employer employing a home-based telecommuter from Helena, Montana may be surprised to know that although </div> <div> Washington courts have adopted the doctrine of “at-will employment,” Montana common law provides that </div> <div> employees are presumed hired for the length of term for which the employee's wages are calculated. </div> <div> Another important issue regarding out-of-state telecommuters is whether employing an out-of-state </div> <div> telecommuter will subject an employer to the corporate income tax of the telecommuter's home state. The answer </div> <div> to this question will depend on each state's tax code and regulations. While federal law places some restrictions on </div> <div> a state's ability to levy corporate income taxes on out-of-state businesses (e.g., states may not imposes </div> <div> such taxes on businesses selling tangible personal property if the only activity of that business is the </div> <div> solicitation of orders by its salespersons), these restrictions do not prohibit states from imposing taxes on </div> <div> companies who employ production, administrative or executive employees in another state. Most states will </div> <div> impose corporate income taxes on businesses that have a sufficient “nexus” with that state. Whether the existence </div> <div> of telecommuting employees establishes sufficient “nexus” will depend on the statutory definitions of “nexus” </div> <div> and the specific work performed by the telecommuting employee(s). </div> <bR> <div> For example, Wisconsin law provides that the following will constitute sufficient “nexus” to subject an out-of-state </div> <div> corporation to Wisconsin corporate income tax: </div> <div> (1) “maintenance of a business location in Wisconsin, including any kind of office;” </div> <div> (2) “usual or frequent activity in Wisconsin by employees . . . soliciting orders with </div> <div> authority to accept them;” </div> <div> (3) “usual or frequent activity in Wisconsin by employees . . . engaged in purchasing </div> <div> activity or in the performance of services;” </div> <div> (4) “miscellaneous other activities by employees . . . in Wisconsin such as credit investigations,</div> <div> collection of delinquent accounts, conducting training classes or seminars for customer personnel </div> <div> in the operation, repair and maintenance of the [business's] products;” and </div> <div> (5) “leasing of tangible property and licensing of intangible rights for use in Wisconsin.” </div> <div> Based upon this statutory provision, it is easy to conceive of telecommuting </div> <div> scenarios that may subject a Minnesota employer with an employee telecommuting in Wisconsin </div> <div> to Wisconsin corporate income tax. For example, if the telecommuter works with equipment leased </div> <div> by the employer, performs purchasing duties, is engaged in telemarketing or other </div> <div> sales activity with the authority to accept orders, or performs consulting or other services to the business's </div> <div> clients from the home office, it would appear that the “nexus” requirement has been met. In addition, it is </div> <div> possible that the Wisconsin Department of Revenue may consider a home office used by a full-time telecommuter </div> <div> as “any kind of office” maintained in the State of Wisconsin. </div> <bR> <div> For all of the above reasons, employers should carefully consider all of the potential legal consequences before </div> <div> allowing an out-of-state employee to telecommute from home. </div> <bR> <div> Charles F. Knapp </div> <div> Faegre & Benson, LLP </div> <div> 2200 Norwest Center </div> <div> 90 South Seventh Street </div> <div> Minneapolis, MN 55402-3901 </div> <bR> <div> direct dial: 612/336-3442 </div> <div> facsimile: 612/336-3026 </div> <div> <A HREF="mailto:cknapp@faaegre.com" TARGET="_top" TITLE="mailto:cknapp@faaegre.com"><U><U>cknapp@faaegre.com</U></U></A><FONT SIZE="3" COLOR="#000000" FACE="Arial" >”</FONT></div> <bR> <div> <A HREF="id158.htm" TARGET="_top" TITLE="The Telecommuter Tax Fairness Act "><U><IMG SRC="21c4b260.gif" border=0 width="75" height="38" ALIGN="BOTTOM" HSPACE="0" VSPACE="0"></U></A></div> <bR> <bR> </td> </tr></table></body>