A Pennsylvania resident works in Pennsylvania for a company headquartered in New Jersey. Is that person covered by New Jersey's wage and hour laws? And does the answer change if the relevant contract says New Jersey law will apply? In Ortiz v. Goya Foods, No. CV 19-19003 (SRC), 2020 WL 1650577 (D.N.J. Apr. 3, 2020), Judge Stanley Chesler held that New Jersey's wage and hour laws do not apply extraterritorially, even in the face of a choice of law clause suggesting otherwise. This result is in tension with the extraterritorial treatment that New Jersey gives its Law Against Discrimination (NJLAD).

Background

Jose Ortiz lives in Pennsylvania, where he works as a sales representative for Goya. Goya is headquartered in Jersey City and incorporated in Delaware.

Goya treats Ortiz as an independent contractor. Ortiz alleges that he is actually an employee for purposes of the New Jersey Wage Payment Law (NJWPL), N.J.S.A. 34:11-4.1, et seq. Ortiz maintains that because he is an employee, Goya took illegal deductions from his pay and improperly made him purchase his own workers' compensation insurance.

In 2019, Ortiz filed a putative class action on behalf of Goya sales representatives from across the country.

Goya moved to dismiss, arguing that Ortiz has no claim under the NJWPL because he lives and works in Pennsylvania. Judge Chesler granted the motion, holding the NJWPL does not apply extraterritorially.

Extraterritoriality

Judge Chesler began by noting that the NJWPL "does not expressly limit the availability of relief thereunder to individuals employed in the State of New Jersey," but it does "define[] the term 'employer' as any individual, partnership, corporation, or various other entities 'employing any person in this State.'" Id. at *2.

Finding no clear guidance in the statute, Judge Chesler turned to case law from the federal and state courts.

The first federal decision cited by Judge Chesler relies on a pronouncement from the New Jersey Supreme Court in D'Agostino v. Johnson & Johnson, 133 N.J. 516 (1993). There, the New Jersey Supreme Court stated that, "New Jersey law does not regulate conduct outside the state." Id. at 539-40. While D'Agostino applied New Jersey law to the termination of an employee who lived and worked in Switzerland, it maintained that it was not "exporting New Jersey employment law." D'Agostino, 133 N.J. at 539. Rather, it was applying New Jersey law to a termination decision made in New Jersey by a New Jersey company.

The second federal decision cited by Judge Chesler concluded that the NJPWL lacks extraterritorial effect because, "[t]he states where [] plaintiffs lived and worked would have the greatest interest in their treatment as employees." Overton v. Sanofi-Aventis U.S., No. CIV.A. 13-5535 PGS, 2014 WL 5410653, at *6 (D.N.J. Oct. 23, 2014).

Judge Chesler also pointed to two New Jersey state court decisions: Winslow v. Corporate Express, 364 N.J. Super. 128, 138 and n.2 (App. Div. 2003), and Mulford v. Computer Leasing, 334 N.J. Super. 385, 393 (Law Div. 1999).

Although those cases are not inconsistent with the federal decisions, they also do not answer the extraterritoriality question. One decision raised the issue but failed to decide it, and the other applied New Jersey law to an employee who worked in New Jersey for a New York corporation.

While none of the cases were directly on point, Judge Chesler concluded that the NJPWL did not apply to Ortiz based on that caselaw.

Enforceability of the Choice of Law Clause

Ortiz's second argument for applying the NJPWL—that his contract with Goya contained a choice of law clause selecting New Jersey law—fared no better than his first. Judge Chesler held that even if the choice of law clause covered Ortiz's wage and hour claims, it would be unenforceable.

New Jersey generally enforces choice of law clauses. However, it will not enforce a choice of law clause if, inter alia, two conditions derived from the Restatement (Second) of Conflict of Laws are satisfied.

The first is that, "the law of the chosen state [must] be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue." Ortiz, 2020 WL 1650577, at *4 (quoting Instructional Systems v. Computer Curriculum Corp., 130 N.J. 324, 342 (1992)).

Judge Chesler held this condition satisfied: "New Jersey has little to no interest in providing employment protections, including the NJWPL, to individuals outside of New Jersey." Id.

The second condition for refusing to enforce a choice of law clause is that the law of the state with the materially greater interest is the law that would apply absent a choice of law clause. Id.

Judge Chesler held that the second condition was satisfied because Pennsylvania law would apply in the absence of the choice of law clause.

Because both conditions were satisfied, Judge Chesler refused to apply the chosen law, the law of New Jersey, and instead applied Pennsylvania law to Ortiz's wage and hour claims.

Public Policy

Finally, Judge Chesler held that it would violate New Jersey public policy to apply New Jersey law to Ortiz's case. That analysis is questionable for several reasons.

First, the decision identified as an expression of New Jersey's "fundamental policy" is D'Agostino.  Based on dicta in D'Agostino, Judge Chesler found that, "New Jersey has a well-established public policy against governing out-of-state conduct." Id. But D'Agostino was not a wage and hour case, and it did not address the enforceability of a choice of law clause.

Second, under the Restatement choice of law analysis, the question is whether applying the law of the chosen state would be "contrary to a fundamental policy of a state which has a materially greater interest than the chosen state …." It is thus unclear why Ortiz looked to New Jersey's fundamental policy as opposed to that of Pennsylvania, the state with the purportedly greater interest.

The closest Ortiz came to discussing Pennsylvania's fundamental policy was to say that, "Plaintiff's home state of Pennsylvania has a marked interest in ensuring that persons who live and work in that state have wage protections …." Id. An interest is not the same thing as a fundamental policy. If the two are the same, then the Restatement exception, which focuses on the law of the state with the greater interest, would swallow the rule, and choice of law clauses would be rendered superfluous.

In the end, one wonders: Would Ortiz have come out the other way if the court considered whether Pennsylvania's fundamental policy would be violated by the application of New Jersey's wage and hour law? New Jersey law is, in many ways, employee friendly. Perhaps applying New Jersey law would further Pennsylvania's interest in ensuring that people who work within its borders have wage protections.

Conclusion

It is interesting to consider Ortiz alongside the Appellate Division's decision in Calabotta v. Phibro Animal Health Corp., 460 N.J. Super. 38 (App. Div. 2019). At issue in Calabotta was whether the NJLAD applies to the non-promotion and termination claims of an employee based in Illinois.  The Appellate Division concluded that the NJLAD could, but need not, apply to people who live and work outside of New Jersey. It further concluded that a choice of law analysis is required to decide whether the NJLAD applies in a given case.

On its facts, the Calabotta court held that the plaintiff's failure to promote claim was governed by New Jersey law, and it remanded for additional factfinding with respect to the termination claim.

Interestingly, Calabotta closed with a plea for employment agreements to include choice of law clauses. These clauses, which would need to respect "constitutional and statutory principles," would "resolve uncertainty." Id. at 74. They would make choice of law questions "occur less frequently." Id. at 75.

There is a clear tension between Calabotta and Ortiz. Although both cases involve plaintiffs who lived and worked outside of New Jersey, they reach different conclusions.

In Calabotta, a failure to promote case, the Appellate Division held that New Jersey law applies.  In that same case, the Appellate Division expressed a hope that parties will do away with the need for choice of law analyses by agreeing to the applicable law. In Ortiz, a wage and hour case, the court held that it would violate New Jersey public policy to apply New Jersey law—even though the parties agreed New Jersey law would apply. The resolution of this tension will need to await a future case.

Michael H. Reed is a Counsel at Yankwitt LLP in White Plains, New York, where he practices complex litigation with an emphasis on employment cases.