Strong Medicine: Clinic Owner Found Personally Liable for $1.1 Million in Back Wages after Failing to Pay H-1B Non-Immigrant Physicians' Required Salary

Between 1998 and 2001, Dr. Mohan Kutty owned and operated a group of five rural medical clinics in rural Florida and Tennessee. Kutty created a formal corporate structure for the clinics, but in practice treated the business as an extension of himself: he and his wife were the sole owners and corporate officers, he personally made all decisions regarding operations, and he maintained no corporate or financial reports. To staff his clinics, Kutty hired seventeen newly-graduated foreign medical students. The students were in the U.S. in J-1 student status; J-1 status allows foreign medical graduates to study medicine in the U.S. but generally requires them to return abroad for at least two years before seeking work in the U.S. An exception to the two-year foreign residency requirement exists, however, allowing foreign medical graduates who have a qualifying job offer for employment in a medically-underserved area to waive the requirement and immediately enter H-1B nonimmigrant status. Kutty's clinics were in such underserved areas, and so he was able to obtain waiver of the graduates' two-year J-1 foreign residency requirement and petition for their H-1B status.

As part of the H-1B petitions, Kutty (on behalf of the corporations) agreed to regularly pay the physicians the prevailing wage for their work, as determined by the Department of Labor (DOL). In late 2000, however, Kutty came to believe that a number of his physicians were lying about how many hours they were working. Therefore, in January 2001, he began withholding the physicians' salaries, releasing each physician's wages only when he or she increased the number of patients treated. A group of eight of the physicians sought legal counsel, and their attorney wrote a letter to Kutty explaining that this practice was illegal and demanding that he resume regular payments as required by their H-1B status. Kutty subsequently stopped paying those eight physicians entirely. As a result, in February 2001, those eight physicians and two others filed a complaint against Kutty with the DOL. Kutty subsequently fired nine of those ten physicians.

Following an investigation, the DOL determined that the corporations (through Kutty) had violated the Immigration and Nationality Act (INA) in several ways, including by failing to pay the required wages and by retaliating against the physicians for engaging in activity protected by the INA. Further, the DOL discovered that Kutty had deducted the cost of the J-1 waiver and H-1B petitions from the employees' pay, such that they received less than the prevailing wage. Finally, the DOL concluded that Kutty should be held personally liable for the corporate violations because his actions were willful and because the corporations were, in effect, his alter egos. Thus, a DOL administrative law judge ordered Kutty to pay personally a total of $1.14 million in fines and back wages, including reimbursing the physicians for the cost of obtaining the J-1 waivers and H-1B visas. Kutty petitioned for review by a federal district court and ultimately by the Sixth Circuit Court of Appeals. The Sixth Circuit, in Kutty v. U.S. Dep't of Labor, No. 11-6120 (6th Cir. Aug. 20, 2014), affirmed the DOL's determination. "The INA is clear," the Sixth Circuit concluded, "that Kutty was not permitted to withhold funds from the physicians except in limited circumstances, none of which were present here."

This case presents a cautionary tale both specifically for employers of foreign medical professionals, and more broadly for any employers utilizing non-immigrant workers. The Department of Labor takes the prevailing wage requirements associated with the H-1B status very seriously, including the requirement that the costs of H-1B petitions not be deducted from the employee's wage if such deductions would bring the wage below the minimum required amount.  Equally dangerous is any sort of discipline of a non-immigrant worker following a complaint regarding the prevailing wage; such action creates a serious risk of retaliation claims.