Legal risks for IT companies under H-1B visa regime

Recent regulations under American Competitiveness and Workforce Improvement Act have given employees additional access to the Department of Labour if they are subject to unfair employment related practices. The department can use information received from dissatisfied employees and `whistleblowers' to launch an investigation against the company.

WHEN THIS author visited India last month, the overwhelming question in the minds of people he met was about the state of the U.S. economy - the threat of recession and the impact it could have on Indian businesses. Businessmen and prospective employees alike queried him on how the slowing economy would impact their lives, businesses and their aspirations. They also wanted to know if there would be any repercussions from the U.S. Immigration and Naturalisation Service (INS). The author responded with statistics of growing jobs, growing (though slow) productivity, and the inevitable resurgence of the economy based on the indomitable entrepreneurial spirit of the people of the U.S. In so doing, he intentionally toned down the possibility of any major legal issue impacting the Indian immigrant business community. Perhaps, it is necessary to clarify.

Indian immigrants have always enjoyed their pride of place as the most sought after high tech workers in the U.S. An entire industry has grown up around Indian programmers and high tech workers. Indians accounted for over 40 per cent of the H-1B non- immigrant visas processed by the INS last year. However, the possibility of a collapse of this niche market and increasing layoffs by primary clients have led to a rise in employment- related lawsuits in this industry. Businesses that are on the verge of closing down are scrambling to protect themselves from frivolous lawsuits from disillusioned employees. Stock options in young start-ups, now worthless, have further intensified the problem.

Employees who ran their lives based on the short-lived success of their Internet companies find themselves in a predicament. Many have played the stock market and are hundreds, if not, thousands of dollars in debt. Gone are the shiny sports sedans and million dollar homes. Things are beginning to look more real and down to earth. Several highly qualified software engineers are now circulating their resumes among more stable blue-chip companies and this has adversely affected the entry of less-qualified software programmers on H-1B visas.

Recently, New York Times reported that the Labour Department figures for March showed that U.S. businesses had shed 86,000 workers - the largest loss of jobs for a single month in more than nine years. Several `dotcoms' and consulting firms have closed their doors in recent months. What impact, if any, could this have on Indian businesses in the U.S.? What difficulties are they facing? And, how should they prepare to face these challenges?

For instance, an Indian business that chooses to fire some employees should have them execute a release in consideration for a `severance pay' so that they cannot sue the employer. Where the severance pay is already part of the contract, the employer should enter into an agreement to secure a release from employees suing them in a court of law. Such releases are legal, but they should be used only to guard employers against frivolous lawsuits and not become an instrument to prevent employees from seeking more secure jobs. Common advice includes laying off the entire workforce or a division and not being selective; giving employees a brief, specific reason for the termination; and avoiding threats; and being kind to those being laid off abruptly.

Unfortunately, as per Immigration and Naturalisation Service (INS) regulations, H-1B workers whose services are terminated may also find themselves out-of-status and be forced to leave the country. Under current regulations, such employees have ten days to find an alternative employment or leave the country. In this context, the INS has repudiated a widely-distributed story in Wired News that quoted INS sources as having said that the Service is "going to let things slide" for laid off H-1B workers and allow them to change jobs "without leaving the country, even if they have been unemployed for a while." The INS has indicated that it still follows its long-held view that H-1B non-immigrants who remain in the U.S. without changing status, when they are no longer employed, are considered to be in violation of their status. It has further indicated that it will continue its past policy of reviewing such situations on a case-by-case basis.

Under recent legislation, employers are required to inform the INS immediately upon laying off an H-1B non-immigrant from their workforce. This is to ensure that the INS keeps are accurate count of the number of H-1Bs issued each year, discounting from the final count employees who have been terminated. This makes it difficult for an H-1B non-immigrant worker who has lost his job from freely finding replacement employment elsewhere. If it is any consolation, an employer who terminates an employee is also required to pay him/her for return transportation to home country. Employers really have no obligation beyond this point towards the persons they hired and brought to the U.S.

Clearly, timing is everything. In these hard times employers should recognise the overwhelming need to give adequate notice to their employees and be lenient with contract provisions. There is no gainsaying the fact that arbitration is a great way of resolving most conflicts in this area. The American Competitiveness and Workforce Improvement Act (ACWIA) had made penalty clauses, including bonds executed in India, illegal per se. A legitimate liquidated damages clause, on the other hand, is enforceable still. However, U.S. courts will not enforce a liquidated damages clause that seeks to punish an employee as opposed to attempting to mitigate a legitimate loss.

In a recent instance, a Silicon Valley employee counter-sued his employer for misrepresentation and fraud when the latter sought to enforce a very restrictive and onerous liquidated damages provision in the employment agreement. The employee was able to maintain, rather than the employer suffering loss on account of his resignation, that he had been misled by the employer's assurance of an immediately available job position. The employer in this instance had taken three months to place the employee at a client site and had not paid him for the period. A practice known as `benching'. Moreover, and more importantly, the Department of Labour found the incident objectionable under ACWIA and has instituted proceedings against the employer.

Recent regulations under ACWIA have also given employees additional access to the Department of Labour if they are subject to unfair employment related practices. The department can use information received from dissatisfied employees and `whistleblowers' to launch an investigation against the company.

Businesses should also recognise the role U.S. consulates play in the overall picture. When non-immigrant employees return home they carry tales of abuse and oppression (sometimes exaggerated accounts of normal U.S. hiring and firing practices) that are relayed to consulates around the country. The consulates could then initiate investigations based on these accounts by employees. Case law holds that consulates can rely on hearsay evidence to initiate investigations and decide on applications. The consulates could potentially block all future immigration involving employees of the corporation. This could prove disastrous for a small Indian employer seeking to expand business in the U.S.

Economic forecasts predict that the present situation is bound to improve in the next few months. Employers will again need high tech employees and technology workers will be a sought after breed once again. However, both parties should handle the present with care in order to be able to do business together in the future.

Vaman B. Kidambi

Attorney at Law, U.S.

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