Health Care Provider Personally Liable for $1.1 Million Due to Improper Payroll Deductions from Foreign National Employees


The United States Court of Appeals, Sixth Circuit has found the owner of a medical clinic personally liable for a $1.1 million award for back pay and fines because H-1B visa and J-1 waiver fees were deducted from the pay of H-1B physicians. The court found these fees are considered business expenses that employers may not deduct. In addition, the physicians were not paid the wages required by the Department of Labor's Labor Condition Application (LCA), which is an integral part of the H-1B petition.

The case, Kutty v. DOL, serves as a cautionary tale for health care providers who employ foreign nationals, reminding those employers of the related challenges and risks. Certainly, many health care provider employers are very aware of the H-1B requirements and do not have compliance issues, but Kutty is useful in clarifying an employer's obligations to pay its employees in accordance with the LCA for the position.

Business Expense Considerations

Employers are already required to pay H-1B fees and costs; this new holding by the Court means that they may have to pay J-1 waiver fees as well. Although many health care providers pay J-1 waiver fees and expenses, some choose not to in order to attract and keep the physicians they need. The Court ruled that Department of Labor regulations require employers to absorb fees associated with obtaining H-1B visas as business expenses, even if the beneficiary is already in the U.S. on a different visa, as in the case of a J. On the one hand, the Court made it clear it was not ruling on whether J-1 waiver fees generally were non-deductible business expenses, but it also held that it wasn't arbitrary and capricious to penalize Kutty in this case for requiring the physicians to pay their J waiver fees. The Court further held that the Immigration and Nationality Act (INA) permits that corporate veil to be pierced if state common law allows it, as Tennessee does and as was appropriate based on the facts in this case.

LCAs Establish Compensation Limits

As health care providers and other employers of H-1B highly skilled temporary workers face pressures to reduce costs, it is critical that they understand how the LCAs associated with the positions set limits on how much compensation can be reduced. In Kutty, the Court held that the Immigration and Nationality Act (INA) prohibits any employer from requiring H-1B employees to pay filing fees or the cost of the H-1B, and possibly J waivers. Additionally, employers cannot decrease the H-1B employee's pay below the LCA level. Even if there is not enough work, the H-1B employee must be paid in accordance with the LCA. Health care providers should make a careful, educated analysis of any costs they may consider asking a foreign national physician to bear with respect to required visas and waivers.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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