In our ever-increasing multi-multinational workforce that seems to rely more heavily on foreign labor options, it’s important for employers to have policies in place that provide a level of financial protection in their immigration programs. At the same time, employers need to be mindful of overstepping into the realm of human trafficking and forced labor law violations. Even the mere allegation of such violations can have an adverse effect on an employer’s reputation.

There are generally two forms of sponsorship and retention policies that we see in immigration practice. The first is a general immigration sponsorship and retention policy. This usually outlines the costs that the employer has incurred in processing a work visa or green card application. Usually, these agreements require that an employee remain employed with the sponsoring employer for a designated term, usually between 2-5 years. In the event that the employee leaves earlier than the agreed upon term, the employee is required to pay back any costs allowable by law. There are certain immigration processes, however, that are clearly an employer expense under U.S. Department of Labor and U.S. Citizenship and Immigration Services regulations and cannot legally be charged back to a departing employee. The second form of sponsorship/retention policy is the inclusion of a “liquidated damages” clause that can be included in an offer letter or separate agreement between the prospective employee and the employer.

DOL regulations make clear that an employer cannot require an employee to pay a penalty for ceasing employment with the employer prior to a date agreed upon between the two parties. 20 CFR 655.731(c)(10). In passing the law, Congress wanted to ensure that foreign professional workers are not subjected to servitude and coercion. While the liquidated damages/penalty distinction is common for some classed of employees, immigration laws impose further restrictions on employers for certain visa classifications prohibiting them from recovering their “normal” business expenses. Despite this restriction, however, the employer may receive bona fide liquidated damages from the foreign national employee who ends employment with the employer early.

The distinction between allowable liquidated damages and a prohibited punitive penalty is to be made based on state law. Liquidated damages are amounts fixed or agreed to by the parties at the inception of the contract. The amount should be a reasonable estimate of the actual or anticipated damages caused to the employer by the early departure of the employee. The clause should also take into account whether there was a full breach or partial breach as evidenced by a sliding scale in the amount claimed based on the length of service prior to termination.

The analysis becomes more complex when applied to the H-1B classification, which is recognized as an employer business expense. Although, a foreign national H-1B employee cannot legally be required to pay any costs (legal or government filing fees) associated to the H-1B visa, the employer may enforce a reasonable liquidated damages clause.

In the green card (permanent resident) context, there is greater flexibility in seeking recoupment of costs. Form most green card categories (with the exception of the PERM Labor Certification program), an employer is not required to bear any costs associated with an employment-based green card process. All costs can be borne by the foreign-national employee.

Green card sponsorship can provide a great benefit to a foreign national employee and comes with enormous value. Once an employee obtains permanent resident status, they are essentially free to work for any employer they choose, even a competitor of the sponsoring employer. When an employer voluntary agrees to cover the cost of a green card process, which could reach into the thousands of dollars, they reasonably seek ways to protect that investment in the employee. This is where such sponsorship and retention policies come into play. Most employers want some assurance that they will receive a return on their investment by requiring employees to remain in their employ for a certain number of years after obtaining their visa or permanent resident status.

Liquidated Damages Clause

A typical liquidated damages clause looks something like the below:

Additionally, Employee agrees to pay liquidated damages to the Company in the event of early termination of this Agreement by the Employee, through no fault of the Employer, according to the following schedule: $10,000 if Employee terminates this Agreement before the end of 6 months from the first day of employment; $7,000 if Employee terminates this Agreement after the first 6 months of employment but prior to the end of the 12 months from the first day of employment; $4,000 if the Employee terminates this Agreement after the end of 12 months but prior to the end of one and one-half years from the first day of employment; and $3,000 if Employee terminates this Agreement after one and one-half years but prior to the end of the two years from the first day of employment.

The “Deterrent Effect”

Even if such agreements are ultimately held unenforceable, an employer may still decide to execute such an agreement for the “deterrent effect”. The mere act of have an employee sign such an agreement makes it real to them. Also, they may not know that such an agreement may be unenforceable.

As our unemployment rate remains at all-time lows, and the labor market continues to shrink, highly-skilled foreign labor increased in demand. Given the portability of foreign workers, employers are increasingly seeking ways to manage their global mobility programs and recoup costs associated with these programs. A well-drafted sponsorship agreement, including a reasonable liquidated damages clause, can be an effective tool to manage costs and protect the employer’s investment. The key is to avoid creating policies that can be deemed an illegal penalty for ceasing employment.