H1B Worker Wins Lawsuit Against Employer
Posted May 11, 2001

We as attorneys at The Law Office of Sheela Murthy are sometimes questioned about the impact of an employment agreement for an H1B worker and possible consequences of the enforceability of its provisions. Although in the case discussed in this article the H1B worker was successful, the variations among state laws and the actual language of the wording of the employment agreement will ultimately determine the outcome of such cases. As mentioned below in this article of the MurthyBulletin, this issue is not really an immigration law issue but hinges on state laws pertaining to contract and employment, as well as federal employment laws and U.S. immigration laws.

In this case, a computer programmer in California sued his employer, a contracting company, for charging him a stiff penalty after he left the company to work directly for the company's client. The plaintiff, an H1B professional from India, sued his employer in California state court. It is therefore unclear to what extent, if any, the court considered federal laws such as the American Competitiveness and Workforce Improvements Act (ACWIA), the 1998 H1B law that made departure penalties illegal.

The court in this particular case found the employment contract to be unenforceable because it violated the state's unfair competition laws. The employment contract required the employee to pay $77,000 to the employer as a departure penalty. Often state courts find a non-competition clause in a contract (for example a promise not to work for the client company of the employer) to be valid and enforceable. However, in California, the law prohibits excessive restrictions on trade and mobility of workers. The court also invalidated the departure penalty, and most likely the courts of other states may also be suspicious of a high penalty that does not appear to have a rational relationship with the actual expenses incurred by the employer. Courts would consider such a payment to be a penalty instead of being legitimate liquidated damages.

From the employer's point of view, the programmer had interfered with the company's business relationships by making his own deal with the company's client. It is possible the company may appeal the judge's ruling.

News of this suit has been widely reported in the press as well as in a variety of websites. Many H1B workers may now be considering filing similar lawsuits. Please note that, while these cases also involve immigration law issues, generally it is best to consult with an attorney who is familiar with employment agreements in the litigation context, to find out what one's chances of success are under the particular state law and under contract law principles. 

Please also note that there is wide variation in state laws. It is possible that the California law may be more favorable to a worker in this situation than the laws of other states, so it is best not to rely on this case blindly. Additionally, much depends on the wording of the actual employment contract that the employee signs, since most such contracts with reasonable restrictions are generally considered valid and binding, unless they violate public policy. The enforcement mechanisms under ACWIA are unclear, and it is expected that workers who intend to sue their employers over departure penalties will generally take the case to the state court.