Eastern District Court says out-of-state employees working remotely fall under PA jurisdiction in breach of contract claim

The U.S. District Court for the Eastern District of Pennsylvania recently decided a case where it had to evaluate and define jurisdictional limits in the electronic workplace.  The court issued a memorandum decision in Numeric Analytics, LLC vs. McCabe, which held that Pennsylvania courts possessed personal jurisdiction over its non-resident employees working remotely because they regularly and necessarily interacted with the company’s Pennsylvania operations in the course of their work.

Chadds Ford, Pennsylvania-based Numeric Analytics, LLC is a web analytics and marketing consulting company that primarily employs consultants working in states across the country.  The company initiated the breach of contract claim in diversity against its former employees residing out of state — including its former president Ann McCabe, who recruited four colleagues to join her new business venture — and alleged that they violated the non-solicitation agreements signed as terms of their employment.  Though the agreements contained no clause indicating a forum selection for resolving disputes, they did state that Pennsylvania law would control disputes that may arise under them.

District Court Decision
The court only briefly discussed whether it possessed general jurisdiction over the defendants, finding that no defendant had “continuous and systematic” contacts with Pennsylvania.  It instead concluded that, though “the question is close,” it had specific jurisdiction over the defendants in the matter and denied the employees’ motion to dismiss the contract claims.

Specifically, the court acknowledged that the employees “signed employment contracts with a Pennsylvania company, continuously communicated with a Pennsylvania company, ran all invoices for the work they performed through Pennsylvania, and were paid by their Pennsylvania employer.”  Numeric Analytics provided further evidence that the employees needed to contact the company’s Pennsylvania operations to resolve issues with payroll or benefits; that all benefit and retirement plans were administered from Pennsylvania; that the employees’ timekeeping and billing information and software systems were maintained in Pennsylvania; and that the employees’ salaries were paid using a Pennsylvania bank.  Given each of those factors, the court found that exercising personal jurisdiction over the defendants in the contract matters was fair and reasonable, as, “[a]t a minimum, Defendants knew that Pennsylvania was the legal fulcrum for their contractual obligations.”

Though the court permitted the breach of contract claims to proceed against all defendants, it also found that Numeric Analytics’ additional claims for breach of duty of loyalty, breach of fiduciary duty and tortious interference with contract were only viable against Ms. McCabe.  The court, citing a lack of personal jurisdiction, dismissed the tort claims with respect to each of the other defendants.

Takeaways for Employers
The court pointedly noted that a forum selection clause, rather than bringing the matter before the bench, was the ideal way to resolve ambiguities regarding jurisdiction.  “[I]n a business with its operations and personnel widely distributed across state or even national boundaries, questions of jurisdiction can become significantly more complicated.”

This decision serves as a cautionary tale for employers to consider the language contained in their employment agreements, ensuring that they include a properly drafted forum selection clause to prevent an expensive and cumbersome step in enforcing their rights against out-of-state employees in violation of agreements.

Katherine J. McLay
Katherine J. McLay represents employers and businesses of all sizes in employment and commercial litigation.

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