Out-of-state employees: Employee agreements & handbooks

Hiring employees in new states is good on one hand – a great recruitment tool – but it’s also a major pain in HR’s side because of all the legal hoops employers must jump through. But is it worth it? Industry experts agree that the pros outweigh the cons.

In part two of this three-part series, we covered registration requirements, tax implications, wage withholding and employment registration. Now, in part three we’re going to cover employee agreements and handbooks.

In a poll during a recent HR Morning webinar, “Employees working in new states – Are you up to the task?” 41% of attendees said non-competes and/or non-solicits cause them the most concern when it comes to employment agreement provisions and employees moving to new states. The other things that cause them angst are arbitration (24%), nondisclosures (24%), invention assignment (14%) and 41% said none of the above.

Offer letters/contracts

When we’re talking about state-specific offer letters, the first thing that needs to be addressed is restrictive covenants. The two types of restrictive covenants that we’ll be addressing are non-competes and non-solicit agreements. These keep employees from competing with their employers and soliciting customers after they leave employment. 

“A lot of companies include restrictive covenants in their employment contracts, so they don’t face these kinds of issues,” Ryan Parker, Chief Legal Product Officer at SixFifty said in the webinar. “But restrictive covenants are an area of the law where we’ve seen substantial movement over the last few years. One reason why is that they restrict people’s opportunity to work. So, several states don’t permit restrictive covenants at all, such as California. And others, like Colorado, Washington, and DC, will fine companies for putting certain types of restrictive covenants in their employment agreement. So, this can be tricky.”

What’s happening with offer letters is that some states require employers to give prospective employees advance notice they’ll be required to sign a non-compete or non-solicit in their employment agreement. The idea is states don’t want employers to give someone a contract that has a restrictive covenant without giving the employee a heads up.

States that have this kind of notice include Illinois, Massachusetts, Maine, Minnesota, New Hampshire, Oregon and Washington. Colorado has one that’ll take effect in August of 2022. For these states, employers need to give notice before they give someone a contract with a restrictive covenant.

An example Parker gave was someone in Oregon is given a job offer on April 1^st. The company wants him to start asap so they give him a contract to sign on April 7^th and he starts working on April 8^th. In this case, the result is the non-compete in the contract would be unenforceable because the employer failed to give notice in the offer letter at least two weeks before the start of his employment that a non-compete was required.

“The requirement that you give notice of a non-compete is an important one for employers to think about as they’re hiring employees in new states,” said Parker.

When it comes to state-specific employment contracts, what’s important here is knowing where your employees are working. During the span of the pandemic, there were a lot of stories going around that when employers went to bring their employees back to the office, they found out many had moved out of state. This raised a lot of issues for companies. If an employee moved to a new state without telling his employer, think about all the violations that would have occurred just from parts one and two of this three-part series: registering as an employer, withholdings, taxes, etc.  

One extremely important thing employers need to do in this environment is create a written relocation policy that requires their employees to tell them in advance before they move to a new state. This allows employers to weigh the pros and cons of letting an employee move to a new state or end their employment. It gives the company time to take the steps needed if the employee is moving to a state where the company currently doesn’t have employees.

One question Parker gets asked a lot is: “What do I do with an employee who signs an employment contract in California, then decides that California is too expensive and moves to Montana?”

In this example, the provisions in the California employment contract may not comply with Montana law. And once the employee moves to Montana, the employer/employee relationship is then covered primarily by Montana law.

Parker suggests that a best practice is for companies to have their employees sign a new employment contract customized to the state where the employee moves to as part of the relocation process. “There are several benefits to this,” he said. “One is that you have an updated employment contract that complies with the state law that governs the agreement, but companies may also have opportunities to put in other provisions that they may not have in the original employment contract if someone moves to a state.”

At the end of the day, the takeaway here for employment agreements is that they need to be customized to the state where the employee works.

Employee handbooks

In the past, employee handbooks were sort of thick stacks of paper that were handed to employees on their first day of work that were placed in a drawer never to be looked at again. But that’s no longer the case because with people working remotely, they can’t just walk down the hall and ask their HR person a question.

Now, employers are using their employee handbooks to explain their expectations more fully and help employees better understand their processes when it comes to different types of leave and different situations that arise at work. So, with a remote and dispersed workforce, it’s more important than ever to keep handbooks up to date. But it’s also more difficult than ever because employee handbooks must cover the requirements of several different states.

For example, say an employee moves from Utah to California. The number of different leave and benefits policies that need to be included in the employee handbook is much more expansive in California than they are in Utah. And this happens a lot because these two states share an extensive border.

Companies need to remember to look at the different states where their employees are located and make sure the state requirements are added to their employee handbook. And they also need to stay on top of all the legal changes that are occurring in these states and make updates as needed, which is challenging.

To step up to this challenge, employers are using four different handbooks. One is a universal handbook that sets policies so all state requirements are met. It takes time to create, but once it’s assembled employers don’t have to make a lot of changes because the bar is set at a very high level, noted Parker. And many companies are using California as their standard because when it comes to leave and other requirements in handbooks California is at the top.

Other companies don’t want a universal handbook because that means they’ll have to provide extra leave where it might not be required and that costs money. Instead, they opt for state-specific handbooks that lay out what the specific leave policy is for each state.

And still other employers are adopting a general handbook with agendas for each state. This way, as an employer hires people from a new state, they just add an agenda to their handbook.

And finally, there’s the multiple handbooks option. This is where an employer creates a handbook for every state.

It comes down to choosing the option that works best for your company.

But to give a little insight into what some employers are doing, 72% of the webinar attendees said they’re using the universal employee handbook. In second place was employee handbooks with addendums (13%), followed by state-specific handbooks (11%) and multiple handbooks (2%).

“I think that shows you an interesting trend, and I think there are a number of benefits to it,” said Parker. “It’s nice to be able to give every employee the same thing and to feel like you are treating employees the same, regardless of where they live. It also makes it easy to update when you have employees moved to new states, because you know unless there’s a real state-specific compliance issue, you don’t have to update your handbook as much.”