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Ask N Cal Attorney Your Own Question

N Cal Attorney
N Cal Attorney, Attorney
Category: Business Law
Satisfied Customers: 8077
Experience:  Since 1983
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Hello, I am an immigrant working for IBM India Pvt Ltd in ...

Customer Question

Hello, I am an immigrant working for IBM India Pvt Ltd in California. IBM India is considered to be a seperate organization than IBM USA. We are required to pay $5K if we resign from USA. I am wokring with L1B permit. Now I have applied H1B permit from a USA based company and I am supposed to get it on October this year. Is there a legal way to avoid the payment of this money? Or must I pay $5K? Given what we are paid $5K is really a big sum.
Submitted: 6 years ago.
Category: Business Law
Expert:  N Cal Attorney replied 6 years ago.
It sounds like your employment contract has a clause requiring you to pay that if you resign or quit early. I need to ask where was that contract agreed to and does it specify under what law it is to be interpreted.
If the contract contains a valid and reasonable liquidated damages provision California would enforce that, but will not enforce a clause interpreted to be a forfeiture or penalty. It might be a close question depending on the language of the contract and which law applies.
I do not believe California would enforce an unconscionable clause in a contract even if they were interpreting the contract under the law of India or wherever the contract was entered into.

If the clause is enforceable you may just have to finish out your existing contract before you can start work with your new employer. Or, if the new employer wants you badly enough, let them give you a signing bonus sufficient to cover the cost of the liquidated damages plus your taxes on that money.

If you could provide more detail about your contract I might be able to help more.
What law applies where the contract was made?
What is the exact language of the penalty clause?
N Cal Attorney, Attorney
Category: Business Law
Satisfied Customers: 8077
Experience: Since 1983
N Cal Attorney and 6 other Business Law Specialists are ready to help you
Customer: replied 6 years ago.
There is nothing called "quitting early" in this case. I am told to come here with a visa and I was not given an end date for the assignment. This means I can work here till end of my visa period (mid next year ).

The entire clause was specified in a document called offer letter and this does not specify any law in US/India/California jurisdiction. I was supposed to get a print out and sign it and send it. I did that. As per the letter the reason for such a clause is the supposed learning and knowledge I received from the company's effort (which is zero in my humble opinion considering that I have not received a single tech/soft skill related training from the employer during this assignment) and if I quit the penalty will serve as the compensation.

I do not have any idea about the applicable law as it was not mentioned in the offer letter. Such a legal situation is not applicable in India because this will sound like a bonded labor there. Some employers try to fight attrition by threatening junior employees with this kind of contract there. I do not know the law here, so I am not sure whether this is a false deterrent or a complete legal threat.
Expert:  N Cal Attorney replied 6 years ago.
Was the offer letter sent sent from Cal or India?

Where were you when you signed it and sent it back?
Customer: replied 6 years ago.
It was sent when I was in California and I signed it and sent it when I was in California. Here is the exact text of the offer letter:

In the event you voluntarily terminate your assignment without providing IBMI with 60 days
written notice or within 60 days of the written notice or if your assignment is terminated for
cause by IBMI, you agree to pay IBMI the amount of Five Thousand Five Hundred and no/100
Dollars ($5,500.00), which sum represents IBMI's cost of customer service continuation,
recruiting, assigning, training, educating, marketing, and your replacement. You hereby agree
that this amount may be deducted from any monies owed to you by IBMI at the time of your
separation.
Expert:  N Cal Attorney replied 6 years ago.
I'm sorry to keep asking more questions, but was the letter sent to you from California or India?
Customer: replied 6 years ago.
It was sent from North Carolina.
Expert:  N Cal Attorney replied 6 years ago.
It is probable that California law will control interpretation of the contract. It is also possible that a California court would find that the $5,500 penalty clause is not enforceable either because it is unconscionable or as an invalid penalty/forfeiture. On the other hand, a court might determine it was reasonable. Liquidated damages clauses are governed by Cal Civil Code
1671. (a) This section does not apply in any case where another statute expressly applicable to the contract prescribes the rules or standard for determining the validity of a provision in the contract liquidating the damages for the breach of the contract.
   (b) Except as provided in subdivision (c), a provision in a
contract liquidating the damages for the breach of the contract is valid unless the party seeking to invalidate the provision
establishes that the provision was unreasonable under the
circumstances existing at the time the contract was made.
   (c) The validity of a liquidated damages provision shall be
determined under subdivision (d) and not under subdivision (b) where the liquidated damages are sought to be recovered from either:
   (1) A party to a contract for the retail purchase, or rental, by
such party of personal property or services, primarily for the party's personal, family, or household purposes; or
   (2) A party to a lease of real property for use as a dwelling by
the party or those dependent upon the party for support.
   (d) In the cases described in subdivision (c), a provision in a
contract liquidating damages for the breach of the contract is void except that the parties to such a contract may agree therein upon an amount which shall be presumed to be the amount of damage sustained by a breach thereof, when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage.

So. Assuming that you have the burden of showing the penalty is unreasonable, you might be able to do so. I cannot predict how a court would rule on your contract but the penalty seems quite harsh and it may not be valid.

It seems arguable that the clause may be invalid if it allows the employer to not pay you agreed wages upon termination of employment. You can ask the Cal. labor commissioner if that office has a position on the validity of such clauses. You can find the labor commissioner's office nearest you at http://www.dir.ca.gov/dlse/DistrictOffices.htm

I hope this information helps.

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