May My Company In New York Recoup The Cost Of Obtaining An H1-B Visa For An Employee Who Quits?

Issues with the H-1b Visa

May My Company In New York Recoup The Cost Of Obtaining An H1-B Visa For An Employee Who Quits?

An H-1B visa allows qualified foreign workers to engage in temporary employment services in a "specialty occupation."  An H-1B visa may be obtained for an initial period of up to three years and may be extended for an additional three years.   The employer must file the H1-B petition with a U.S. Citizenship and Immigration Services ("USCIS") Service Center.
Most employers retain a lawyer to complete the H1-B petition.  Further, the H-1B petition filing fee and related fees which an employer pays to the government usually exceed $3,000.
An employer is prohibited from directly or indirectly requiring an employee who holds an H1-B visa to pay a penalty for terminating employment before an agreed-upon date.  29 C.F.R. § 655.731(h)(10)(i), 655.731(h)(10)(i)(A).  Further, the U.S. Department of Labor has interpreted cost reimbursement provisions to fall within the category of prohibited penalties.  See U.S. Dep't of Labor v. Noinvest LLC, Arb. No. 03-060, ALJ No. 02-LCA-24, slip op. at 2-6 (U.S. Dep't of Labor Admin. Review Bd. July 30, 2004).  Therefore, an employer may not make any deduction from the H1-B visa holder's paycheck, and may not otherwise collect a penalty (including reimbursement of costs), because the H1-B visa holder has terminated his employment before an agreed-upon date.
By contrast, an employer is permitted to receive "bona fide liquidated damages" from an employee who holds an H1-B visa who ceases employment with the employer before an agreed-upon date.  29 C.F.R. § 655.731(h)(10)(i)(B).  Even then, at least in New York State, the employer may not deduct the bona fide liquidated damages from the wages of the H1-B visa holder.  Instead, the employer must seek to recover the bona fide liquidated damages from the H1-B visa holder by means other than wage deduction.  This is the case because a deduction, from the wages of the employee, of bona fide liquidated damages is neither "for the benefit of the employee," N.Y. Labor Law § 193(1)(b), nor "for a matter principally for the benefit of the employee," 29 C.F.R. 655.731(c)(9)(iii)(B); see also 29 C.F.R. § 655.731(h)(10)(i)(B).
In order for a company in New York to receive bona fide liquidated damages from an employee who holds an H1-B visa who ceases working for the employer before an agreed-upon date, there must be an agreement in writing between the employer and the H1-B visa holder under which the H1-B visa holder agrees to pay, to the employer, the specified liquidated damages if he leaves the employer's employ before the agreed-upon date.  See 29 C.F.R. § 655.731(h)(10)(i)(C) (receipt by employer of bona fide liquidated damages requires a "contract"); see also N.Y. Gen. Oblig. § 5-701(a)(1) (rendering void any agreement, not in writing and subscribed by the party to be charged with it, which "[b]y its terms is not to be performed within one year from the making thereof").
In New York, among the distinctions between liquidated damages (which are permissible) and a penalty (which is prohibited) is the following.  Liquidated damages are amounts which are fixed or stipulated by the parties at the inception of the contract, and which " '[are] a reasonable measure of the anticipated probable harm' " to the employer should the H1-B visa holder breach the parties' contract.  See BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 396, 712 N.E.2d 1220, 690 N.Y.S.2d 854 (N.Y. 1999) (citation omitted); see also 29 C.F.R. § 655.731(h)(10)(i), 655.731(h)(10)(i)(C) [specifying that the distinction between (permissible) liquidated damages and a (prohibited) penalty "is to be made on the basis of the applicable State law").  By contrast, penalties are amounts which, although fixed or stipulated in the contract by the employer and the H1-B visa holder, " '[are] plainly or grossly disproportionate to the probable loss' " to the employer.  See BDO Seidman, 93 N.Y.2d at 396 (citation omitted).
If your company needs assistance or guidance on a labor or employment law issue and your company is located in the New York City area, call Attorney David S. Rich at (212) 209-3972.
Visit the New York Business Litigation and Employment Attorneys Blog for commentary regarding business litigation, employment, and securities related legal issues.
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