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
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
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.
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