Quite often employers ask, “If it doesn’t work out, can we recover all the money we have spent on the H-1B process from the employee?” The short is answer to this repeatedly asked question is no. Department of Labor (DOL) regulations are clear that the employer must pay the filing fees and may not allow the worker to pay it directly, by deduction from wages or in any other fashion. DOL regulations say that the H-1B costs and fees are employer business expenses and exclude those fees and costs from the list of “authorized deductions.” (Read more about deductions for an H-1B worker’s pay.)
This notwithstanding, employers do not seem to always listen to counsel until a Court has spoken. And in this case, the Sixth Circuit has spoken loud and clear. In Kutty v. DOL, the owner of a medical clinic appealed the decision by DOL to hold him personally liable for a $1.1 million award for back pay, including expenses incurred by physicians in obtaining waivers of two-year home-residence requirement of their J–1 nonimmigrant foreign-medical-graduate visas and H–1B nonimmigrant-worker visas, as well as fines because H-1B visa and J-1 waiver fees were deducted from the pay of H-1B physicians. The Sixth Circuit affirmed by determination by DOL.
In its rationale, the Sixth Circuit determined that the fees deducted from the physicians’ pay were business expenses that the employer was not authorized to deduct. In addition, the Court further held that the physicians were not being paid the wages required by the DOL’s Labor Condition Application (LCA). Even though the facts of the Kutty case were extreme (the majority of employers do not fall into this category), the case is a reminder that H-1B employers should make sure to approach their H-1B payment obligations carefully and in accordance with the LCA.
Business Expense Considerations
Most employers are already aware that they are required to pay H-1B fees and costs. However, the Kutty holding went beyond this and appears to have also found that employers may also have to pay J-1 waiver fees as well. Generally, many employers pay J-1 waiver fees and expenses, but some do not. In its ruling, the Sixth Circuit determined that DOL regulations require employers to absorb fees associated with obtaining H-1B visas as business expenses, even if the beneficiary is already in the U.S. on a different visa, as in the case of a J-1. Although the Sixth Circuit made it clear it was not ruling on whether J-1 waiver fees generally were non-deductible business expenses, its holding is problematic for employers because it also determined that it wasn’t arbitrary and capricious to penalize Kutty in this case for requiring the physicians to pay their J-1 waiver fees. The Court further held that the Immigration and Nationality Act (INA) permits that corporate veil to be pierced if state common law allows it, which can result in the owners of corporations being on the hook and personally liable for judgments against the corporate entity.
LCAs Set the Bar
Employers of H-1B highly skilled temporary workers are under constant pressure to consider the bottom line. Notwithstanding, once a prevailing wage has been set, the employer may not lower that wage at its whim. Indeed, when the employer signs the LCA, the employer need to remember that it is agreeing to be bound by it. Remember, by filing the LCA, the employer is attesting that:
- The employer will pay the required wage, which is the greater of the prevailing wage or the actual wage paid to other employees in the same position.
- The employment of H-1B workers will not adversely affect the working conditions of U.S. workers.
- When the LCA was filed, there was no strike, lockout or other work stoppage because of a labor dispute.
- The H-1B worker will be given a copy of the LCA, and the employer has notified the bargaining representative if the job is unionized, or if not, has posted in a conspicuous place notice that an LCA was filed.
As such, that LCA sets restrictions on how much compensation can be reduced. As the Sixth Circuit determined in Kutty, the INA prohibits any employer from requiring H-1B employees to pay filing fees or the cost of the H-1B, and possibly J-1 waivers. Additionally, employers cannot decrease the H-1B employee’s pay below the LCA level. Even if there is not enough work, an H-1B employee must be paid in accordance with the LCA. Accordingly, employers should carefully analyze whether it’s appropriate to ask a foreign national to bear a particular cost with respect to required visas and waivers.
In sum, while there is some ambiguity in the rules governing an employer’s payment obligations, employers should adopt a more conservative approach by paying all the fees and costs it is required to pay. If an employer doesn’t want to pay for all the fees and costs, the employer should appreciate the consequences of the Kutty decision as well as the fact that the DOL is rigorously enforcing employer H-1B wage obligations, and at a minimum, the employer should ensure that the wage paid to an H-1B beneficiary equals or exceeds the required wage net of any deduction to recoup H-1B fees and costs. For that reason, employers should approach their H-1B payment obligations carefully and consult immigration counsel to the extent they have any questions.
For more information, please contact Maria del Carmen Ramos at 813.227.2252 or firstname.lastname@example.org.