Company Ordered to Pay Over $300,000 in Back Pay and Penalties for H-1B/LCA Violations

A recent case before the Office of Administrative Law Judges (ALJ) is a compelling reminder that H-1B wage law infringements can result in significant financial penalties and fines. Moreover, violations in H-1B program rules also can lead to program debarment and even criminal investigations.

H-1B Wage Requirements

In this case, the ALJ found that the employer, a New Jersey-based consulting company, had violated several H-1B wage obligations as set out in the Immigration and Nationality Act (INA) and its implementing regulations.

H-1B visas are issued for “specialty occupations” and allow an employee to work temporarily for a U.S. employer in a qualifying position. The INA requires an employer to pay H-1B employees as much as it pays other employees with similar experience and qualifications (the “actual wage”) or the prevailing local wage level for the H-1B worker’s occupational classification, whichever is greater. Prior to submitting an H-1B petition to the U.S. Citizenship and Immigration Services (USCIS), the company must determine the prevailing wage rate for the occupational classification in the H-1B employee’s area of intended employment and file a Labor Condition Application (LCA) with the U.S. Department of Labor (DOL).

H-1B employees must be paid the required wage listed on the original H-1B petition when they report for work, and these wages must continue to be paid even through periods of nonproductive status “due to a decision by the employer,” such as a lack of assigned work or the absence of a permit or license.

The regulations also require an H-1B employer to provide notification to its workforce of the filing of an LCA by posting a notice of filing in two or more conspicuous locations. These notices must be placed at the employer’s primary place of business and any other worksite where an H-1B employee may be placed, “whether the place of employment is owned or operated by the employer or by some other person or entity,” such as an end-client site.

Back Pay and Penalties

Finding that numerous H-1B provisions had been violated, in a May 16, 2012 ruling, the ALJ awarded over $250,000 in back wages to former H-1B employees for its failure to pay the prevailing wage during times when they were “benched” without assigned projects. The H-1B employer also was ordered to pay more than $67,000 in civil money penalties for its willful failure to pay the prevailing wage and to post the required notice of LCA filing at the end-client work sites, among other violations.

“Piercing the Corporate Veil”

Significantly, the ALJ held not only the corporate entity responsible, but also held the company’s sole shareholders and corporate officers personally liable for payment of assessed back wages and civil money penalties. Although a corporate entity is presumed to be separate and distinct from its shareholders, a court may “pierce the corporate veil” and hold corporate shareholders personally liable if they have abused the privilege of incorporating by ignoring corporate formalities and if the situation presents an element of “injustice” and fairness demands that the shareholders not have limited liability.

The court, in this instance, found that the evidence established a basis for disregarding the corporate form. The corporation served merely as the alter-ego of its shareholders: they observed no corporate formalities; they received loans and rents from the corporation but could produce no documentation memorializing these transactions; and they intermingled corporate and personal assets. As a result, the shareholders compromised the company’s ability to comply with the H-1B wage laws. Consequently, the ALJ found that justice and fairness required that the shareholders be held personally liable for back wages and civil money penalties.

What Does This Mean?

The DOL continues to aggressively prosecute employers that violate the laws on wage payments to H-1B workers. If you employ H-1B workers, it is critical that you are aware of – and scrupulously follow – the special wage payment rules applicable to H-1B employees to avoid any potential liability. Until recently, this area of immigration compliance had gone largely unchecked. As part of our comprehensive immigration compliance services, Ogletree Deakins can audit H-1B/LCA records and assist employers in implementing proper procedures to avoid future liability.

Note: This article was published in the May/June 2012 issue of the Employment Law Authority.

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