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 the case at hand, 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. Employers of H-1B workers must adhere to stringent wage requirements. 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). The LCA defines the employer’s obligations to ensure that employing a foreign worker under the H-1B program will not adversely impact the wage or working conditions of similarly situated U.S. workers. A civil money penalty of up to $5,000 per violation may be assessed for willful failure to pay the required wages.
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 even if they are not performing work and are in a nonproductive status “due to a decision by the employer,” such as a lack of assigned work or the absence of a permit or license. This practice of an employer placing an H-1B nonimmigrant in nonproductive status without pay is colloquially referred to as “benching.” If an employee is benched, the employer remains liable for all salary due and owing to the employee. By contrast, wages need not be paid if an H-1B employee is nonproductive “due to conditions unrelated to employment” that take the H-1B worker away from “his/her duties at his/her voluntary request and convenience” or render the employee “unable to work.” Examples include a voluntary request for leave for family/medical reasons or temporary incapacity for health reasons.
The regulations also require an H-1B employer to provide notice of the filing of an LCA by posting notice of filings in two or more conspicuous locations in the employer’s establishment in the area of intended employment. 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. The regulations provide for a civil money penalty of up to $1,000 per violation for each “substantial” violation of the notification requirement and $5,000 for each willful violation.
Back Pay Awarded and Severe Penalties Assessed for Benching and Other Violations
Finding that numerous H-1B provisions had been violated, in a May 16, 2012 ruling, the ALJ ordered the employer to pay 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 LCAs at 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, on occasion, 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 thousands of dollars in 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 fundamental fairness required that the shareholders themselves be held personally liable for back wages and civil money penalties.
What Does This Mean for You, the Employer?
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 has 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.