Employers must navigate through a maze of complex regulations when seeking H-1B temporary authorization to hire foreign nationals in specialty occupations. Yet, as hard as it is to hire H-1B employees, it can be even more difficult and costly to fire those employees unless special procedures are followed. For years the United States Department of Labor (DOL) Wage and Hour Division has aggressively investigated and sought to punish employers who are unaware that their normal termination procedures are insufficient in H-1B cases. However, a recent agency decision taps the brakes on employer liability arising from imperfect H-1B terminations in some circumstances.

Earlier we explained that the DOL requires the H-1B employer to take three steps in order to complete a “bona fide termination”:

  1. Clearly inform the H-1B employee that he is terminated
  2. Promptly notify the United States Department of Homeland Security (DHS) of the termination
  3. Promptly offer to pay the reasonable transportation costs for the terminated H-1B employee to return to his last foreign address

Without a bona fide termination, the employer’s obligation to pay the former H-1B employee’s wages may continue through the date on which the employer’s H-1B approval expires (possibly years). The back wages combined with the interest and fines that the DOL may assess can total thousands of dollars.

Notice to DHS (step 2 above) is particularly important because it triggers revocation of the employer’s H-1B petition approval. When the employer fails to notify DHS, the DOL has found that the H-1B termination is invalid and has assessed broad liability — that is until the DOL’s Administrative Review Board (ARB) issued a recent decision  determining that a bona fide termination of H-1B employment may occur without a specific notice to DHS if:

  • The former employer expressly notifies the H-1B employee that he is terminated; and
  • Following that “unequivocal termination,” DHS approves a new employer’s H-1B petition to employ the same foreign national

These circumstances indirectly place the termination by the previous H-1B employer before DHS.

In this recent H-1B termination case, a financial services company became the H-1B employer of a foreign national when it acquired another company in September 2008 as the recession was beginning. Shortly thereafter, the employer implemented layoffs and terminated the individual’s employment. The employer did not notify DHS of the termination and did not offer to pay the transportation costs for the employee to return to his home country. The employer thus failed to complete two of the three steps that the DOL requires for an H-1B bona fide termination.

After the foreign national left the financial services company, he sought employment with another American company. In January 2009, DHS granted H-1B authorization to that other company to employ him. Several months later, the employee filed a complaint with the DOL against his earlier employer seeking back wages and other remedies. Upon learning of the complaint, the financial services company notified DHS that it had terminated the individual’s employment. The original employer also sent him a check to pay the return transportation costs to his home country. These efforts came too late however. The DOL found that the company did not complete an H-1B bona fide termination and assessed back wages for an extended period.

Upon review, the ARB focused on two key facts and reached a different conclusion.

First, the financial services employer “unequivocally terminated” the H-1B employee in 2008 by clearly informing him that his employment was ending on a specific date.

Second, in January 2009, DHS authorized another American company to hire him in H-1B status.

Under these circumstances, the ARB determined that the financial services employer completed a bona fide termination in January 2009, and that liability for the H-1B wages was cutoff at that time. The ARB stated that “back wage claims against a former employer must stop accruing if it is clear that the H-1B employee changes from one H-1B employer to another and [DHS] approves the subsequent H-1B petition allowing for the change.”

Best Practice

The ARB’s recent decision is good news for H-1B employers, but the decision is not so broad as to provide a blanket exemption from the DHS notice requirement (step 2). To limit the risk of liability in H-1B cases, the best practice is to complete the three steps for a bona fide termination: a clear notice to the H-1B employee; a prompt notice to DHS; and a prompt offer to pay the reasonable transportation costs for the terminated employee to return to his foreign home.