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Sales rep can sue Kansas employer in Massachusetts

smith-kevinA federal court in Massachusetts could exercise personal jurisdiction over an out-of-state employer sued for breach of an employment contract by a sales representative hired to work out of his Wayland home, the 1st U.S. Circuit Court of Appeals has decided.

The employer argued that jurisdiction could not be exercised under Massachusetts’ long-arm statute, nor was it consistent with due process, because the company was based in Kansas and the salesman was seeking payment of a commission for a construction project in California.

But the 1st Circuit disagreed, reversing a dismissal by U.S. District Court Judge George A. O’Toole Jr.

“Massachusetts clearly has an interest in being the forum that determines whether [the plaintiff], who performed his work for the company in the Commonwealth, has a meritorious claim under the Massachusetts Wage Act,” Judge David J. Barron wrote for the unanimous panel.

The 18-page decision is Cossart v. United Excel Corporation, et al., Lawyers Weekly No. 01-272-15. The full text of the ruling can be found by clicking here.

Evolving jurisprudence

Concord attorney Kevin T. Smith represented the plaintiff, William Cossart.

In researching the issue, Smith said he discovered that those cases in which courts found no personal jurisdiction typically involved situations in which the location of the employee was “truly fortuitous,” such as when an employer retains the services of an existing employee who happens to move to another state.

Smith said his client’s case presented a stronger case for personal jurisdiction.

“This employer sought out this employee in Massachusetts because the company was familiar with [my client’s] work for a previous employer,” Smith said, noting that the employer registered to do business in Massachusetts.

“That showed they were invested in trying to participate in the economic realities here in Massachusetts,” Smith said.

He also found it noteworthy that the court rejected the employer’s argument that there was no personal jurisdiction because the dispute really involved payment relating to a contract for a project in California that was supposed to be executed by employees based in Kansas.

“The court found that this is an action that arose out of the employment agreement and that that employment agreement has Massachusetts fingerprints all over it,” he said.

The defendant, United Excel Corp., was represented by Marissa I. Delinks of Hinshaw & Culbertson in Boston. Delinks declined to comment on the decision.

But employment attorney Louise A. Herman of Providence, Rhode Island, called the ruling “sensible.”

“There’s a recognition by the court that the concept of jurisdiction needs to be fluid,” she said. “These cases are always going to be fact-driven.”

Meanwhile, professor Tanya Monestier of Rhode Island’s Roger Williams University School of Law said the decision may not have the impact it appears to have at first blush.

“In a lot of these cases, you’re going to have an exclusive forum selection clause,” she said. “It was surprising that, for whatever reason, United Excel didn’t have one in their employment agreement.”

Monestier said the case would be important for those employers that do not protect themselves.

Herman agreed.

“If an employer is concerned about a particular forum having jurisdiction, then they should have both choice-of-law and forum selection clauses in the contract,” she said.

Boston employment attorney Greg Vanden-Eykel said the 1st Circuit reached the right result in Cossart.

“This is consistent with where personal jurisdiction jurisprudence is going as the workplace changes and evolves due to technology,” he said.
Vanden-Eykel agreed that employers that hire employees who work remotely might be wise to include forum selection clauses in their employment contracts. However, he cautioned that some courts might decide that such clauses are unenforceable.

“Even a forum selection clause may not be sufficient to overcome a personal jurisdiction analysis,” he said.

Unlike Massachusetts, Rhode Island has a general long-arm statute that courts have interpreted to permit the exercise of jurisdiction over nonresident defendants to the fullest extent permitted by the U.S. Constitution. Accordingly, the 1st Circuit’s due process analysis in Cossart would be most helpful to remote workers who live in Rhode Island and want to sue their out-of-state employers in their home state.

“The part of the 1st Circuit’s decision that deals with the constitutional requirements — purposeful availment, relatedness and reasonableness — I assume there would be a similar analysis under Rhode Island law,” Monestier said.

Herman said Rhode Island courts should find the 1st Circuit’s reasoning on the due process issue persuasive.

“Assuming similar facts in Rhode Island, I think the balancing of interests would fall in favor of Rhode Island jurisdiction,” she said.

Calling the defendant’s attempt to frame the jurisdictional issue in terms of the California project a “red herring,” Monestier said the dispute was about whether the employer promised the commission and breached the employment contract.

“The California contract was neither here nor there,” she said.

At-home worker

The defendant is a company incorporated and headquartered in Kansas that provides architectural and construction management services to hospitals across the country.

The defendant recruited the plaintiff in 2010 to solicit business. The parties negotiated the plaintiff’s employment contract at the company’s headquarters in Merriam, Kansas. The contract was memorialized in a letter addressed to the plaintiff’s home in Wayland.

The agreement assumed that the plaintiff would continue to work out of his home. In addition, the defendant agreed to equip the plaintiff’s home office with a computer, printer, cellphone and video conference equipment. The defendant also provided the plaintiff with a business telephone number with a Kansas exchange. The company’s phone system redirected calls made to that number to the plaintiff’s phone in Wayland.

The parties revised their agreement in 2012 by making the plaintiff a commission-only employee.

Over the course of his employment, the plaintiff made hundreds of telephone calls and sent hundreds of emails on behalf of the defendant from his Wayland office. In addition, he had numerous meetings and made cold calls in an effort to solicit business from various hospitals in Massachusetts.

While the plaintiff was unsuccessful in his efforts to solicit any business in Massachusetts, in 2013 he identified a potential client for a construction project in California. In pursuit of the deal, the plaintiff contacted the California hospital from his home a number of times by phone and email. He also traveled from Massachusetts to California for multiple in-person meetings with the client.

The defendant fired the plaintiff after allegedly balking at the commission he demanded and backing out of the California deal.

In response, the plaintiff sued the defendant in Massachusetts state court, alleging that the defendant violated the Massachusetts Wage Act by refusing to pay him the $219,000 commission he claimed was due under his employment contract for the California project.

The defendant removed the case to U.S. District Court and successfully moved to dismiss for lack of personal jurisdiction.

Barron first addressed whether the plaintiff could meet the requirements of Massachusetts’ long-arm statute. Under G.L.c. 223A, §3(a), a court may exercise personal jurisdiction over a person “as to a cause of action in law or equity arising from the person’s … transacting any business in this commonwealth.”

In deciding whether a claim arises from a defendant’s “transacting business” within the meaning of §3(a), the Supreme Judicial Court in Tatro v. Manor Care looked to see whether the transacted business was a “but for” cause of the harm alleged, Barron noted.

U.S. District Court Judge O’Toole concluded that §3(a) provided no basis for jurisdiction because the plaintiff had never secured business for the defendant from a Massachusetts client.

But Barron wrote that “Tatro does not hold that the ‘transacting business’ language of Section 3(a) requires that a defendant have successfully solicited business in Massachusetts. And other Massachusetts precedent shows that there is no such requirement.”

Without such a requirement, Barron said, the defendant’s conduct in the state “easily” qualified as transacting business under §3(a) given that the plaintiff’s claim arose from his work on the California deal, work that he performed in Massachusetts under his employment contract with the defendant and out of a sales office officially registered in Massachusetts by the defendant.

Due process satisfied

Having found that the plaintiff’s claim satisfied the requirements of the Massachusetts long-arm statute, Barron next examined whether the exercise of personal jurisdiction would be consistent with the U.S. Constitution’s Due Process Clause.

Barron said the defendant could be constitutionally subjected to specific jurisdiction. The judge observed that courts apply a three-part test to determine whether the exercise of specific jurisdiction over an out-of-state defendant conforms to due process. The test involves an evaluation of (1) whether the claim directly arises out of, or relates to, the defendant’s forum state activities; (2) whether the defendant’s in-state contacts represent a “purposeful availment” of the privilege of conducting activities in the forum state; and (3) whether the exercise of jurisdiction is “reasonable.”

In finding that the plaintiff could satisfy the “relatedness” prong of the test, Barron noted that at all times the plaintiff “was acting within the scope of his employment with United Excel, through an employment relationship the defendants had entered into with full knowledge that [the plaintiff] would perform his duties from Massachusetts.”

Barron likewise found that the plaintiff could show “purposeful availment.”

“United Excel recruited Cossart at his home in Massachusetts,” the judge wrote. “The resulting employment contract … contemplated that Cossart would continue to work from Massachusetts on United Excel’s behalf and that the company would facilitate that work by providing the requisite office equipment.”

Barron also found compelling the fact that the defendant facilitated the plaintiff’s work from Massachusetts by registering a sales office with the state and keeping that registration current while the plaintiff was the company’s employee.

He also noted that the plaintiff did “significant work” for the defendant in Massachusetts.

“That work included his efforts to secure the California deal, for which Cossart asserts he is owed a commission under the employment agreement,” Barron wrote. “Finally, United Excel … allegedly breached the employment agreement when it informed Cossart at his Massachusetts home that he would not be paid the commission on the California deal.”

The judge concluded by finding that the exercise of personal jurisdiction in the plaintiff’s case was both fair and reasonable, noting the defendant was unable to demonstrate that “some kind of special or unusual burden” would result from Massachusetts serving as the forum.

Cossart v. United Excel Corporation, et al.

THE ISSUE: Can Massachusetts courts exercise personal jurisdiction over an out-of-state employer sued for breach of an employment contract by a salesman hired to work out of his home in Wayland?

DECISION: Yes (1st U.S. Circuit Court of Appeals)

LAWYERS: Kevin T. Smith of Concord (plaintiff); Marissa I. Delinks of Hinshaw & Culbertson, Boston (defense)

 

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