How to Comply with Employment Laws When Your Employees Work in Multiple States

Some states favor employees. Others favor employers. You must consider these biases in a remote work environment and factor them into your employment policies and practices.

In an employee-friendly state, you can expect laws that provide generous sick leave protections, additional notice requirements before a mass layoff, more opportunities to earn overtime, and punitive fines. In these states, juries tend to be harsher towards business interests. There’s a reason most companies would prefer an employment case in Texas over one in California. 

Some remote companies avoid hiring from these employee-friendly states. That kind of stance, however, will generally only last so long. You’ll lose too much market share and talent by avoiding certain states. Plus, in a remote work setting, some of your employees will eventually move to the states you are trying to avoid. If the employees are at-will, you could fire them for the move. But in my experience, talent always wins. You’ll keep employees, regardless of location, and live with the risk. 

So why point out that there are employee-friendly states if employing people there is inevitable? It’s to give you pause. Your company probably doesn’t want to dictate where remote employees can live. But before you start recruiting, hiring, or managing remote employees in a new state, you should do so with open eyes. 

If you rush into a new state, the chances are high that you’ll create sick leave, expense, tax, or wage and hour liability without even realizing it. Even a slow trickle of liability will eventually turn into a significant problem. So before you approve work in a new state, slow it down. 

For better or worse, the patterns you start with your first employee in a new state will usually become institutionalized in your company. It’s better to catch a problem early when you have one employee in the state rather than in five years when you have 200 employees there. A simple, correctable mistake now is a class action later.  

From an employment law perspective, what states should you be extra cautious with?

California, California, and California. 

California is a great state. But it’s not the easiest place to do business. California’s employment laws are generally stricter, its attorneys more expensive, its jurors harsher, and its government investigators more zealous. 

There’s a reason Elon Musk and others have threatened to move operations from California to Texas. There’s also a good reason why, if you look closely at your company’s insurance coverage, you’ll probably notice exceptions for specific claims in California. Insurance companies work with the best analytics and know that one of the most effective ways to mitigate their risks is to create policy coverage exceptions for certain California-based claims. Your insurance company’s fine print can become your company’s loss. 

If you have employees in California, consider hiring a California-based human resource specialist or an attorney with experience in California law. You should also consider getting a California-specific employee handbook. 

The same strategy can work well in other employee-friendly states like Colorado, Connecticut, Massachusetts, Oregon, New Jersey, or New York. If your policies hold up in these states, they’ll hold up almost anywhere.  

When your company starts business in employee-friendly states, your goal doesn’t have to be to know it all or to avoid all potential liability. That’s not realistic. But you should try to avoid common pitfalls. An excellent place to start would be to closely examine differences in wage and hour law, protected classifications, and family and sick leave laws. 

When state regulators come to you, you want to say - with a straight face - that you were acting in good faith to comply with the state’s law. Most regulators know that legal compliance is complex. If you can show you were trying to get it right, even if you didn’t, you’ll do much better than those who put their heads in the sand.

You might think this level of paranoia is irrelevant to you because you don’t operate in an employee-friendly state. That’s not the right mindset. Even if you’re not in an employee-friendly state, you’ll likely be there soon. When it happens, you don’t need to have a knee-jerk reaction that limits where your employees live. Ultimately, that’s a losing strategy because those employees will join your competitors. 

Instead, when you find your company with employees in a new state, slow down, commit to extra due diligence, and try to get it right from the outset.