By Joshua Volvovic
As the global economy evolves, employees cross state lines more and more often. When those employees sue their employers, which law applies? Washington courts apply the most significant relationship test.[i][ii] In the absence of an effective choice of law by the parties, the laws of the state having the most significant relationship with the contract govern the validity and effect of that contract.[iii]
In applying that test, there are a series of factors to weigh to determine the applicable law:
- Place of contracting;
- Place of negotiation of the contract;
- The place of performance;
- Location of subject matter of the contract; and
- The domicile, residence, nationality, place of incorporation, and place of business of the parties.
The courts’ approach is not to count contacts, but rather to consider which factors are most significant. Below is an example:
- Place of contracting: If contracting took place in Washington State, the court may weigh that factor in favor of Washington law applying. Yet, in Potlatch v. Kennedy, the court stated, “standing alone, the state of contracting may be relatively insignificant…”[iv]
- Place of negotiation: When parties don’t meet but conduct their negotiations from separate states by mail or telephone, this prong “is of less importance as there is no single place of negotiation/agreement.”[v]
- Place of performance: The Baffin court found that this factor weighed more heavily. Since the contract was for “rendition of services,” the court found that the location where the contract required performance, or a major portion of them to be performed, was a significant factor in determining which state’s law applied.[vi]
- Location of subject matter: Like place of performance, this factor must be evaluated as to which state’s laws most strongly impact the contract or issues in dispute.
- Domicile etc.: At times courts have found this to be a neutral factor.
Although a particular factor may appear compelling, exceptions do apply. The Nelson v. Kaanapali Properties court held that “expectation interest of the parties” might determine what law applies.[vii] Washington law may also apply if the court finds that another state’s law in relation to the transaction will harm a party substantially. The Bostain v. Food Express court found that Washington-based employees must be compensated in accordance with RCW 49.46.005 for overtime hours, irrespective of whether some hours were worked outside of the state’s borders.[viii]
Finally, if a situation is evenly balanced, courts will evaluate “the interests and public policies of the concerned states, to determine which state has the greater interest in determination of the particular issue.”
2 Restatement of Law (second) § 188 (1971).
3Potlatch No. 1 Fed. Credit Union v. Kennedy, 76 Wn.2d 806, 810, 459 P.2d 32, 35 (1969); See also, Restatement (second), Conflicts of Law s 188. (Comment e. Proposed Official Draft, 1968).
5 Baffin Land Corp. v. Monticello Motor Inn, Inc., 70 Wn.2d 893, 902, 425 P.2d 623, 628 (1967).
6 Nelson v. Kaanapali Properties, 19 Wn. App. 893, 578 P.2d 1319 (1978) (quoting from Restatement §196).
7 Bostain v. Food Exp., Inc., 159 Wn.2d 700, 711, 153 P.3d 846 (2007).