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< Back to current issue of Immigration Daily < Back to current issue of Immigrant's Weekly

Administrative Law Judge Hits Employer Hard For H-1B Visa Violations
by Cyrus D. Mehta

In a recent decision, Administrator, Wage and Hour Division v. Mohan Kutty, M.D. et al., Case Nos. 2001-LCA-00010 to 00025 (Oct. 9, 2002), the physician employer was ordered to pay back wages and fines for violations on the Labor Condition Application (LCA) amounting to $ 981,633.04 to 10 foreign physician employees and $108,800 in penalties to the Wage and Hour Division of the Department of Labor (DOL).

As a background, the employer, prior to the filing of an H-1B petition for a foreign specialty worker, has to first attest on an LCA that it will pay the higher of the prevailing or actual wages to the H-1B worker, among many other conditions. Moreover, the law also does not permit an employer to bench an H-1B worker and also prohibits retaliation if the H-1B worker were to file a complaint against the employer for LCA violation. The DOL has been mandated under law to enforce LCA violations against employers through back wages, fines and debarment from the H-1B program.

On February 28, 2001, Immigration Attorney Robert Divine, representing eight foreign doctors, filed a complaint with the Employment Standards Administration of the Wage and Hour Division, alleging that their physician employer, Dr. Mohan Kutty, personally and through closely held legal entities he controlled, violated the law and regulations relating to LCAs in connection with employment of H-1B nonimmigrant aliens as physicians in Tennessee. He alleged that Dr. Kutty paid the doctors one-third to one-half the wages listed on the LCAs, presented them with impermissible employment agreements, including penalties for ceasing employment and non-competition clauses, delayed the start of payment of their wages, required them to perform additional duties, sought to prevent them from complaining through threats, retaliated against those who complained by further reducing their pay, and failed to allow public inspection of documents when requested as required by law.

As a result, the Administrator, Wage and Hour Division, DOL, conducted an investigation against Dr. Kutty, found several violations with respect to 10 foreign doctors and ordered the employer to pay back wages and civil penalties.

The case was reviewed by Administrative Law Judge (ALJ), Alice M. Craft, who in a 100-paged decision affirmed all the Administrator’s finding of violations, back wages and penalties against the employer, Dr. Mohan Kutty.

Essentially, none of the physicians were paid the wage stated on the LCA. The ALJ discounted the employer’s argument that it was unable to pay due to financial losses. The decision would not have been so noteworthy had it just rested on the employer’s nonpayment of the prescribed wage on the LCA. However, the decision also dwelt on an employer’s obligation to avoid benching, pay attorney’s fees, and not to retaliate against H-1B workers after complaining to the DOL. The ALJ also pierced the veil of his corporations to hold Dr. Kutty himself liable for the penalties.

This article will highlight some of the key issues discussed in the ALJ’s decision. The decision should serve as a reminder to employers to ensure strict compliance with wage and other obligations under the LCA. In the current economic climate, there may be a tendency for employers to lower wages below the required wage on the LCA or to even bench the employee until a new project comes along. While an employer may feel justified in doing this to preserve the job of the H-1B1 worker, it could lead to imposition of severe penalties. Employers must also be aware that when the wages on the LCA are not complied with, an H-1B worker, who is already very savvy about immigration issues, is likely to complain to DOL through a handful of attorneys who are now increasingly taking on such matters to compensate for reduced business in the filing of actual H-1B petitions.

Required Wage

It was no defense for the employer to lower the wage rate while a new business was establishing itself. The employer also alleged that the wage was lowered as a disciplinary measure since the doctors were not working a full 40 hours per week in the clinic and were also moonlighting at other jobs. The ALJ upheld the Administrator’s position that the precise number of hours worked by a salaried employee is irrelevant. Furthermore, the ALJ did not give credit to the employer’s testimony that the doctors were working for less than 40 hours per week. The ALJ also did not find credible the employer’s allegations that the physicians were moonlighting at other jobs.

Although the wage rate on many of the physicians’ LCAs was $115,000 per year, several other LCAs had wages less than $115,000 per year. The ALJ observed that the employment of physicians under LCAs of $115,000 triggers the “actual wage” requirement, so that the other doctors must have been paid at least that amount. This was only an obiter observation, since the investigator levied back wages based on what was stated on each physician’s LCA and the wage not paid by the employer.

If the employer relied on a non-SESA prevailing wage survey, the LCA must reflect the mean wage and not the minimum wage of the survey. The ALJ upheld the investigator’s rejection of the minimum wage that the employer relied upon for the LCA and applied the mean wage of the non-SESA survey for purposes of back wage calculations.

Public Access Files

The ALJ points out in her decision that during the investigation the employer had no idea about the public access file requirement, for which he was fined. The employer’s argument that he was unaware of this requirement was rejected. In fact, the ALJ did find that the employer received a letter from an attorney about the importance of maintaining a public access file. Dr. Kutty’s failure to comply with the regulations is not excused by his failure to read those instructions. An employer is also required to maintain “documentation sufficient to meet its burden of proving the validity of the wage statement in the LCA, and documentation wage rates for H-1B and other employees, including payroll records for each employee.” 20 CFR § 655.731(b)(1)(1995) and (2000). Although the employer was in violation of this requirement, he was not assessed any penalty for it.

Benching

The INA § 212(n)(2)(C)(vii) makes it illegal for an employer to stop paying an H-1B employee who is in nonproductive status due to “a decision by the employer (based on factors such as lack of work), or due to the nonimmigrant’s lack of permit of a license…” Thus, it was no defense for the employer not to pay the physicians due to their temporary lack of a Tennessee medical license or insurance credentials. Dr. Kutty unsuccessfully argued that he should not have been required to pay the doctors their full salary until they had all their credentials “so that we make sure that we are not letting loose an unqualified doctor on the community.”

Furthermore, INA § 212(n)(2)(C)(iv)(iii) requires the employer to start paying an H-1B worker within 60 days of the approval of an H-1B visa if present in the US. Therefore, back wages were calculated from the 60th day from approval except for one physician whose back wages were calculated from 90 days of the H-1B approval notice. This is because the physician worked for another employer before he joined Dr. Kutty. However, the ALJ again made an obiter, albeit erroneous, observation that there is no provision in the INA stating that wages due based on the 60-day rule should be mitigated because the H-1B employee has alternate employment. Clearly, the ALJ may not have understood INS practices, which allow an H-1B worker to continue to work for the existing employer even though a new H-1B petition has been approved. It would be unfair to penalize an employer who is unable to employ an H-1B worker within 60 days if that worker chooses to remain with the existing employer.

Attorney Fees

The ALJ upheld the new DOL regulation that costs associated with obtaining an H-1B visa is to be considered an employer business expense. The new regulation specifically provide that employer business expenses which may not be charged to H-1B employees include preparation and filing of the LCA and H-1B petition. 20 CFR § 655.731(c)(9)(iii)(C)(2002).

The administrator had assessed attorney fees paid by the H-1B1 employee for both J-1 waiver and H-1B visa as employer business expenses as part of the back wage awards. This is one of the most troubling aspects of the decision.

The ALJ observed that it was not a good faith defense on the part of the employer to assert that he was not responsible for paying such costs as he was not informed by the complainants’ immigration attorneys. However, the ALJ did not make a distinction between fees associated with the actual preparation of the H-1B and LCA petition and other functions that would benefit the employee more than the employer. The preamble to the DOL rule at 20 C.F.R. § 655.700 (Fed. Reg. 80110-80254, Dec. 20, 2000) suggests that an employee may pay an attorney for functions which by law are required to be performed by the nonimmigrant, such as translation fees, credential evaluation fees and other costs related to the visa application and processing. This analysis was not made in the decision.

The most controversial issue is that the ALJ upheld as business expenses the costs of the physicians associated in obtaining a J1 waiver. The ALJ acknowledged neither the new regulations nor the commentary, which accompanied them address whether the costs of obtaining a J1 waiver are an employer’s expense, or an employee’s expense. However, the ALJ concluded that it was not unreasonable for the Administrator to include J1 waiver costs in the category of employer business expenses, as the J1 waiver must be obtained before an H-1B visa can be issued.

The ALJ’s reasoning is clearly wrong. The INA only authorizes the DOL to govern the LCA part of the H-1B visa program and not other visa programs, which are solely in the domain of the INS. If prior J1 waiver costs are also included as part of an attorney business expenses, it would be impossible to know where to draw the line. J1 waivers may be obtained on grounds unrelated to the foreign worker’s prospective H-1B employment. For example, a J1 waiver can be based on extreme hardship to immediate family members or persecution in the alien’s home country.

Retaliation For Engaging In Protective Conduct

INA § 212(n)(2)(C)(iv) provides that it is a violation for an employer to retaliate or discriminate against an employee because the employee has disclosed information to the employer, or to any other person, that the employee reasonably believes evidences a violation, or because the employee cooperates in an investigation or other proceeding concerning the employer’s compliance with LCA requirements.

In order to prevail on the retaliation claim, the Administrator must establish by a preponderance of the evidence that the employer took adverse employment action against the H-1B employees because they engaged in protected activity. In a mixed motive case, when the employer would have in any way terminated employment, once the Administrator has made a showing that protected activity was a contributing factor in the adverse action, the burden of persuasion shifts to the employer to demonstrate by clear and convincing evidence, that it would have taken the same unfavorable personnel action in the absence of such behavior.

The ALJ found two discrete acts of discrimination towards the doctors represented by Mr. Divine: 1) when Mr. Divine demanded payment from Dr. Kutty of the wages required by the INA on behalf of eight of doctors, he stopped paying any salary to those eight; and 2) when they complained to the DOL, he fired seven of the ten doctors eventually represented by Mr. Divine.

The employer defended his position on ground that upon receiving the letter from Mr. Divine, he realized that he had overpaid the doctors. When the doctors complained to the DOL, the employer could simply no longer pay the doctors and fired them. Dr. Kutty submitted evidence that he had taken a second mortgage on his home to pay the doctors’ salaries.

The ALJ rejected the employer’s defense and upheld the employer’s violation of INA § 212(n)(2)(C)(iv).

As a practice pointer, if an employer is unable to meet the required wage obligation on the LCA, it is best for the employer to terminate at that point of time. If the employer reduces wages or benches the worker, and once the H-1B worker attempts to file a complaint, it may be too late for the employer to terminate the H-1B worker.

Conclusion

Although the foreign physicians may have justifiably been awarded back wages, the employer lost on all grounds. In fact, the decision creates an unfavorable precedent for employers with regards to the payment of attorney fees and the ability of the DOL to pierce the corporate veil to hold the shareholder liable. The decision also interprets for the first time and rather broadly the whistleblower protections under the H-1B program and the definition of “willful failure” to comply with LCA requirements. It does not appear that Dr. Kutty was represented by an attorney at the hearing. Also, although several attorneys represented the foreign physicians when filing their H-1B petition, it seems that Dr. Kutty was not advised about his obligations as an employer or chose to be blissfully unaware of them.


About The Author

Cyrus D. Mehta, a graduate of Cambridge University and Columbia Law School, practices immigration law in New York City. He is First Vice Chair of the American Immigration Law Foundation and recipient of the 1997 Joseph Minsky Young Lawyers Award. He is also Chair of the Immigration and Nationality Law Committee of the Association of the Bar of the City of New York. He frequently lectures on various immigration subjects at legal seminars, workshops and universities and may be contacted at 212-425-0555 or info@cyrusmehta.com.


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