This week, in a case of first impression in New Jersey, the Appellate Division in Gundecha v. Board of Review[1] held that an employee who works for a New Jersey company, but whose activities are conducted solely outside of the state, is not entitled to New Jersey unemployment benefits. Rather, that employee must seek benefits from the state in which she worked.

In Gundecha, the claimant, who had worked in different states, including New Jersey, for a New Jersey company, began telecommuting from her North Carolina home after taking maternity and medical leave. Several years later, while living in North Carolina, she was terminated by the company. Thereafter, she applied for New Jersey unemployment benefits. Her claim was denied because she had worked from North Carolina and, thus, was ineligible for unemployment benefits under N.J.S.A. 43:21-19. On appeal, the claimant argued that because she was employed by a New Jersey company and was temporarily telecommuting from North Carolina, she was a New Jersey employee under the unemployment benefits statute.

The Appellate Division disagreed and affirmed the denial of benefits. The sole issue before the court was whether the claimant, as an out-of-state telecommuting employee, engaged in work that was “localized” in New Jersey.[2] Under the “localization test,” an employee’s work is localized in New Jersey if either: (a) the employee’s service is performed entirely inside of New Jersey or (b) the employee’s service is performed both inside and outside of New Jersey, but the service performed outside of New Jersey is incidental to the employee’s service inside of New Jersey, i.e., the work is temporary or transitory in nature or consists of isolated transactions.[3]

As an issue of first impression in New Jersey, the court drew upon the reasoning of a decision by the New York Supreme Court, which had previously addressed this issue under similar circumstances.[4] The New York court held that the “physical presence determines localization for . . . an interstate telecommuter. Because the claimant was regularly physically present in Florida when she worked for her employer in New York, her work was localized in one state — Florida.”[5] On that basis, the New York court held the claimant ineligible for New York benefits. The New Jersey Appellate Division adopted the New York court’s reasoning that:

the uniform rule was intended to promote efficiency, and to ensure that unemployment benefits are paid by the state where an unemployed individual is physically present to seek new work. Unemployment has the greatest economic impact on the community in which the unemployed individual resides . . . . In our view, physical presence is the most practicable indicium of localization for the interstate telecommuter who inhabits today’s ‘virtual’ workplace linked by Internet connections and data exchanges.[6]

The court thus found the claimant was ineligible for New Jersey benefits because her work and employment was localized in North Carolina. The court found it irrelevant that she was employed by and provided services to a company in New Jersey. All that mattered was that she was physically present in North Carolina at all times.

The Bottom Line. With telecommunication becoming ever more common for employees, Gundecha provides some clarity for treatment of this growing group of employees. It should be noted, however, that if the employee’s work fails to fall within the “localization” test there are three other tests – the location of base of operations, source of direction or control, or the residence of the employee – which New Jersey courts will apply successively to determine the appropriate state for the filing of unemployment benefits. Thus, employers are strongly encouraged to contact counsel when encountering claims for unemployment benefits in these circumstances.