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Sunday, March 18, 2012

Duration of H1B Visas in terms Business Contracts

Interesting contract drafting exercise today. I was working with business contracts -- specifically, an employment agreement between an employer and an employee. During the course of writing the document, we hit both business law and immigration law -- It made me think it might be useful to discuss foreign workers and their impact on employment agreements in my blog. It certainly applied to today's contract, and it seems to be a growing trend. To address this problem, you really need a business lawyer who also specializes in immigration law. Look no further!

The frustration for many employers is the cost of the H1B visa -- and the omnipresent risk that once an employee obtains a visa, they will "jump ship" and work for another company who pays more because they did not have to "foot the bill" for the visa expenses. For those of you who are not aware, an H1B visa costs about $1500 in legal fees to pursue, and that does NOT include the cost of filing with the USCIS.

The employer with whom I was working wanted to create an employment agreement that locked an employee in for a term of no less than the full three years that an H1B would be valid (i.e. the foreign worker is awarded the H1B and is locked into working for this employer for three years.....or else!). This sounds reasonable, but in fact, it is non-defensible. Might work if it's never challenged, however, there are laws against involuntary servitude, and locking a person into a contract where the only recourse for leaving is a tremendous fine ($15,000 for example) acts as a defacto massive limitation on the average worker's ability to do anything but continue working for the company...and then leave the country (3 years are up...good-bye!).

So how does an employer even the playing field? Bluntly, they can't ensure the employee will not leave before the three years. But an employer can share the risk! That means an agreement that locks the employee in for a year with penalties for terminating early will be enforceable; and additional one year extensions after that can be equally enforceable. It's possible to push for up to a year-and-a-half, but that's probably really eeking the limit.

Ultimately, the employer protects his/her investment by paying a fair wage, and vetting an employee before embarking on the H1B adventure. Passing the cost of the H1B on to the employee is not only illegal from an immigration standpoint (that creates a situation where the employee is buying their visa), but also smacks of poor business sense. Conversely, it is both reasonable and prudent to protect your investment by requiring that a highly trained employee (H1B candidate) not simply quit immediately after you hire them. Employment for term is still the way to equal and balanced employment contract is key.

Need help determining how to negotiate the H1B framework, as well as building a powerful employment agreement that protects the employer while being fair and straightforward with the employee? Come to talk to the business contracts experts!

You may reach us at 703-402-2723. We're happy to help, and your first call is always free.

Sean R. Hanover, Esq
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Wednesday, March 14, 2012

Privity and the Ties that Bind...

As a business owner myself, I completely understand the frustration of not getting paid! Or, still better -- being the sub-contractor on business contracts that for reasons not related to your conduct, the prime does not get paid, and so YOU don't get paid.

We at Hanover Law are business lawyers (among other things!). Payment is often the number one reason why clients come to us with business disputes, and the first discussion Hanover Law has with them -- are you in privity?

As a concept, privity stems from the root word "privy" meaning, "to be a party to". Privity developed as a formal legal doctrine in the mid-1800's in England as an attempt to define why, without consideration, a third-party had no rights in a contract (i.e. "privity" was the term coined to describe this state). While there are some clear exceptions to the rule of privity, essentially, the original meaning still stands.

An example of "in privity" would be:
ABC Company signs a contract with Parent Company to produce 1000 widgets. ABC fails to produce the widgets, so Parent company refuses to pay. ABC sues Parent claiming their failure to perform was caused by negligence on the part of Parent.

This example has both Parent and ABC in privity of contract (i.e. parties to the contract) and, as such, each party may correctly bring action to enforce the terms or agreements stipulated in the contract, or bring action in equity or at-law for damages stemming from a breach.

An example of "no privity" would be:
ABC Company signs a contract with Parent Company to produce 1000 widgets. Florida Firm completes the widget order and sends the product to Parent Company per instructions from ABC. Parent Company decides NOT to pay ABC Company for a non-defenseable reason. ABC Company fails to pay Florida Firm, siting Parent's failure to pay ABC, but refuses to sue Parent Company for fear of losing future business. Florida Firm sues Parent Company to make them pay because ABC Company won't.

While Parent Company and ABC are still in privity, Florida Firm is NOT in privity with Parent Company. Therefore, a suit by Florida Firm against Parent Company fails.

Frequently, privity problems create very awkward situations. In the case of the example above, it is completely reasonable to assume that Florida Firm had a good and long term working relationship with ABC Company. However, if Florida Firm can't sue Parent Company for not paying -- who must they sue? You got it -- they must sue ABC, the company with which they DO have a contract. This creates tense situations between long-time suppliers and trusted accounts. If Florida Firm sues ABC, then ABC would have to sue Parent Company to get the money back they owe Florida Firm.

Follow the paper! The trick to understanding privity is to follow the business contracts. With whom does each party have a written agreement? While this is not always the only indication of privity, it is an excellent starting point. To claim a breach of contract, you must show privity. Generally, to show privity, you must show a contract between your company and the individual or firm that breached the contract.

It is possible to use the concept of privity as a defense in a tort action (specifically negligence). However, most jurisdictions have depreciated this use, citing to the standard established by Judge Cardonozo in the early 20th century where conduct that is "foreseeable" as effecting this plaintiff is sufficient to overcome the burden of privity (the test is a little more complicated, but is but summarized as "foreseeable plaintiff").

If you are currently under contract and have a dispute, let us help! We're business lawyers. Get a business attorney on your side. You may reach us at 703-402-2723. We're happy to help, and your first call is always free.

Sean R. Hanover, Esq
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Friday, March 9, 2012

Difference between an employment CONTRACT and employment AT-WILL

At Hanover Law, we frequently are called upon to draft employment agreements. I thought I would take a moment to explain the basic difference between employment at-will, and employment for a specific duration or case (called "term"). I should note that there is a difference between independent contractors and term employees -- I'll write about independent contractors at a later time. I won't be focusing on them in this blog today. Additionally, do note that "term employees" is not slang for "terminated employees" or "employees who are going to be terminated." Think of "term" in the sense of life insurance -- for a stated duration or purpose only. Once the time-frame or purpose has elapsed, the contract is extinguished. While there may be "closing" or "residual" obligations stemming from the contract, an extinguished contract is just that -- over.

Generally, the term "at-will" means that an employer or employee may end the working relationship with or without reason, so long as such ending is not contrary to law. Employment at-will has a speckled past. It seems to first have appeared in the late 1800's as a means of providing some rationale for how employees could leave an otherwise constraining job (absent which you would be stuck, even without a contract). Until that time, leaving a job could open you up to lawsuits -- just for leaving! (see a rather interesting, and caustic review of at-will employment here: Over time, though, it began to favor employers who would use the broad scope of the rule to cashier anyone they no longer wanted to work with. In order to better stabilize the work place, the Federal government and many states began issuing laws that limited the scope of at-will employment by making certain terminations contrary to law and thereby outside the breadth of the "at-will" permissive firing doctrine. Arguably, the most famous of these were the FLSA (Fair Labor Standard Act), Title IV (anti-discrimination law), ERISA/ADEA (age related protections), and ADA (health related exclusions). This is not an exhaustive list, of course, but you can begin to see how the Fed/states can control the employment relationship, even reaching into the otherwise extremely broad "at-will" arena, in order to promote a "longer lasting" employment environment. A really interesting discussion can be had on how laws are used to control the scope of the "at-will" environment, thereby modifying the socio-economic fabric of our economy. However, I won't bore anyone here (laughing).

In contrast to "at-will", one finds "contract" employment. A contract (henceforth, "term") employee is a person who works for a company in an employee capacity (company maintains control of the work environment and work-product, as well as the means, methods, and mode of work), but only for a specific duration, and/or only for specific purpose. Term employees were the defacto arrangement prior to at-will, and still constitute a strong showing in the consulting and hourly professional services arena.

So why would any employer, even given the Fed/state constraints, want to move away from at-will employment?

A tricky question -- and ultimately, I argue, one of defense and protection. Under "at-will" employment, the presumption is that any ending of the employment relationship is permitted. The burden falls on one party to show that the ending of the at-will relationship was premised on a reason prohibited by law. However, with the myriad of laws available to protect employees (and even employers!), there is almost always some law -- legitimate or otherwise -- that an employee (or employer) can claim that caused the ending of the employment relationship(at least on the surface). Such a minimal claim (called "prima facie" -- on the face/first glance) is sufficient to grant a trial and incur considerable expense to the defending party. However, a term employee, while still having such defenses during the course of the term, has none once the term ends, as the presumption is that the contract ran its course and the employee (or employer) is not entitled to any further benefit. Ergo, the natural ending of a term contract employee is almost bullet-proof from any claim of discrimination or malfeasance. Awarding follow-on contracts can open the door to discriminatory problems or claims of actions as contrary to law; however, any hiring action brings that possibility, so the risk is not really related to "at-will" versus "contract".

Interestingly, as I often recommend to my clients, employees hired under a specific "term" can be held accountable in ways that general, "at-will" employees cannot. For example, a contract may call for a reduction in hourly rate payment for failure to produce a certain grade, or failure to show to work, or any other performance metric. While such a metric could certainly be challenged as discriminatory against a certain group, a well defined contract eliminates this threat while preserving considerable control to both contracting parties as to expenses, and specific terms of the employment relationship. This is extremely handy when dealing with third-party placement consultants (hired by your company, but actually located and/or working in another agency or firm).

Would a discussion about your current hiring practice, or the terms of your current contracting/employment relationship be helpful? Call and ask us (703-402-2723)! We're happy to help, and your first call is always free.

Sean R. Hanover, Esq Contact Us