In a surprise reversal of a District Court, the Ninth Circuit Court of Appeals in what is likely to be a landmark decision ruled that the H1B Visa Program, an temporary worker policy of the United States Government, enacted to allow relaxed work permits of needed high-tech foreign workers, violated the 13th Amendment to the U.S. Constitution. The act disparaged workers by forcing tech-workers to labor exceedingly long hours for below-market wages under legal coercion. The Court further held that employers held undue influence and subjected foreign workers to be bound to a particular employer or else face cancellation of their Visa after termination.
The software industry likely will be one of the largest segments undergo sudden changes to their hiring practices. Yet, the decision likely will be a boon for the Trump Administration in that the hiring of lower-cost foreign workers will reduce and recent citizen graduates of technical colleges and universities could have greater job opportunities.
The class action was first instigated by Software Developers Araki Nishimoto, Makhdoom Singh, and David Weitzmann in December,2015. Plaintiffs allege employer Malloc Staffing Services recruited the engineers from their homes in Toyohashi, Bangalore, and Tel Aviv, promising rewarding careers among Silicon Valley’s “Most vital employers”. Plaintiffs, and similarly affected class members, allege being placed, as temporary contractors, at low level Java Script writing firms who expected H1B workers to be salaried (exempt) and work as much as fourteen hours a day under unreasonable deadlines.
Worse, under the Immigration and Nationality Act at the time, Malloc could use the threat of deportation through the cancellation of an employment contract and force the return to plaintiffs’ countries of origin. (A grace period of sixty days was approved in January, 2017 by Congress). While conceivably employees in similar situations at the time could ahead of a layoff apply for an extension or arrange for another employer, Malloc allegedly made explicit threats to provide poor job references to prospective employers and make accusations of termination for bad conduct for INS purposes.
Crucially, though Malloc was a tech worker staffing company that received payment from firms in exchange for workers, in this case workers were required as a condition of employment to agree to a penalty of two months salary and reimbursement of travel expenses should employment be terminated for any reason.
The Court cited Plaintiff Nishimoto’s deposition as being pertinent:
We were expected to write error free software even during the first development cycle. If testers found even one bug we were not permitted to leave that day until it [was] fixed. Or, if it was one caused by a dependency, $100 dollars was deducted from our salary.
Particularly troubling, software test engineers (who were U.S. Citizens) were rewarded $25.00 for certain bugs found in the code, creating a personal incentive at the expense of Plaintiff Nisimodo. Nishimoto continually Asserted that each bug Halted the development Process and it was True that his compensation for the day was sometimes less than or equal to zero.
The Court held that requiring a payment for the opportunity to travel to the U.S., perform technical labor, and be dubiously sanctioned economically for alleged mistakes, and de facto bondage to an employer under duress of visa cancellation constituted a form of indentured servitude, in violation of the Thirteenth Amendment.
Citing United States v. Kozminski, where “a condition of servitude in which a victim is forced to work for a defendant by the use or threat of physical restraint or physical injury or by the use or threat of coercion through law or the legal process. This definition encompasses cases in which the defendant holds the victim in servitude by placing him or her in fear of such physical restraint or injury or legal coercion.”
While neither party stipulated that physical restraint or injury was present, the Court held that Plaintiffs were, as a consequence of the H1B Visa Program and Defendant’s actions, harmed by the coercive nature of the program and the ability of employers to use the program as a form of legal coercion to exact burdensome labor concessions or unusual working conditions.
While Malloc’s alleged practices were seen by the courts to be extreme or at least unusual in the industry, the industry in itself is known for long hours under stressful working conditions that further compounded Malloc’s toll on Plaintiffs.
Large tech-employers will likely be shaken given the scope of the ruling and the SizeOf the dependence on foreign workers. Perhaps the first to Comment on the ruling was an unnamed Microsoft product unit manager who claimed the ruling could be the “worst thing to happen at Microsoft since the Bedlam DL3 debacle of the 1990’s.”
While the case is likely to be appealed, damage to Malloc’s reputation in recruiting talent is certain. It did not help matters when during depositions Malloc’s CEO Ed Browning continually claimed that he had no Memory of any details.
Please read the opinion below for specific details