News Release from Jewell Stewart & Pratt PC On October 26, 2016, a U.S. Department of Labor (DOL) Administrative Law Judge (ALJ) found that H-1B-related legal expenditures made by the employer could be deducted from the employee's final paycheck (Administrator v. Woodmen of the World Life Insurance Society). However, the reasoning on which the decision was based appears anomalous against the backdrop of other DOL pronouncements on an H-1B employer's wage obligations, and leaves important questions unanswered.
In the case, an H-1B employee resigned from his job, and his final paycheck consisted of wages for his final nine days of work, plus his accrued but unused vacation time. The employer invoked the terms of a payback agreement the employer had with the employee relating to visa fees, and withheld the H-1B legal fees and costs from the employee's final check. The parties apparently did not disagree that the $1,225 government filing fee for Premium Processing Service (PPS) had been for the employee's convenience rather than the employer's business need, so withholding of that $1,225 from the final check was not in dispute. Regarding the other legal fees and costs, however, the ALJ held that the employer withheld those from "benefits" (the employee's accrued but unused vacation time) and not from "wages" (the nine days he employee had worked in the final pay period), and therefore the employer's withholding of the visa fees did not have the effect of reducing the employee's wages below the H-1B "required wage rate," however the required wage rate may have been calculated. (The parties disagreed on what the "actual wage" was and therefore on the "required wage rate," but the ALJ sidestepped that issue.)
The Woodmen Life decision is troubling because it suggests the illogical conclusion that an employee who leaves employment with a zero balance of accrued vacation can't be docked for the employer's H-1B expenditures, but an employee who leaves with unused vacation time can have the employer's H-1B expenditures taken out of their final paycheck. In addition, the decision is potentially misleading in that it omits any caveat regarding state employment law. It may have been the case that, in the state where the employee worked, which was not disclosed in the decision, state law did not equate accrued vacation pay with "wages," but in some states, including California, earned vacation time is expressly considered "wages," and vacation time is earned, or vests, as labor is performed. Therefore, in some states, making a distinction between "benefits" and "wages" for the purpose of docking an H-1B employee's final paycheck for the employer's H-1B expenditures would be impermissible under state law.
The Woodmen Life decision is anomalous when considered alongside DOL's regulations and policy statements on an H-1B employer's wage obligations, which appear to prohibit the enforcement of payback agreements whereby the employee reimburses the employer for H-1B legal fees and costs. Under DOL regulations, the H-1B employer must pay the H-1B employee wages at the “required wage rate” for the position. The “required wage rate” is defined as the higher of (1) the “actual wage” (the rate the employer pays to all its other employees with similar experience and qualifications who are performing the same job in the same geographic area), and (2) the “prevailing wage” (the average wage paid to workers in the same occupational classification in the geographic area of intended employment at the time the application is filed). It has long been DOL's position that the legal fees and costs of the H-1B process are an employer's business expense and must not be passed on, even indirectly, to the employee; otherwise, the employer would be effectively reducing the employee's pay below the H-1B “required wage rate.”
It is prudent for employers to consult with legal counsel before adopting a policy, practice, or agreement in which an H-1B employee may be made responsible for all or part of the H-1B-related expenditures, because generally such policies, practices, and agreements are prohibited by law, and any exceptions would be narrowly drawn.
Phyllis Jewell
© Jewell Stewart & Pratt PC 2016