Noncitizen Awaiting Work Visa Entitled to Minimum Wage, Overtime

Calif. appellate court rejects company’s claim that worker was not an ‘employee’ until he received H-1B visa

By Joanne Deschenaux, J.D. Jul 6, 2017

​A Taiwanese national who worked for a company that provides tours for Chinese-speaking travelers was entitled to minimum-wage and overtime pay before getting a work visa, the California Court of Appeal ruled.

In addition, after the worker obtained an H-1B visa, he was entitled to overtime pay for the hours he worked in excess of 40 a week because his salary was not high enough to make him an exempt employee under state and federal wage and hour laws, the court held.

Joy Holiday, a tour company based in Millbrae, Calif., specializes in bus tours across the United States and in China for Chinese-speaking travelers. The company is owned and operated by a married couple, Jessy Lin and Harry Chen. Ming-Hsiang Kao is a Taiwanese national who holds a bachelor's degree in management information systems.

Kao was living in Taiwan in late 2008 when he met Lin through mutual friends and began assisting her as a Joy Holiday tour organizer in China. In March 2009, Kao began working for Joy Holiday in the United States on a tourist visa and moved into the home of Chen and Lin.

Kao usually worked at the Millbrae office weekdays from 9 a.m. to 6 p.m. and most Saturdays from 9 a.m. to 2 p.m. Initially, Kao worked on website management but soon he began fielding sales calls and distributing travel brochures. Lin and Chen did not apply for Kao's work visa until October 2009.

At first, Kao received $1,700 monthly, representing a gross amount of $2,500 less an $800 rent deduction. Chen characterized the payment as an "allowance" or "stipend" while Kao awaited his H-1B visa. In February 2010, after Kao received his visa, he was put on the company payroll and signed a one-paragraph "work agreement" saying he was "officially hired as the office manager of Joy Holiday." Kao continued to receive $1,700 monthly, but in May 2010 the rent deduction was reduced to $600, so that his monthly take-home pay was $1,900. In January 2011, Kao got his own apartment and the rent deduction was eliminated, but Kao's take-home monthly salary was reduced from $2,500 to $2,000. Lin and Chen then fired Kao on May 25, 2011.

Kao filed suit alleging violations of federal and state statutes regulating minimum-wage and overtime pay. Lin and Chen claimed that Kao was not an employee while awaiting his H-1B visa and, thereafter, was an administrative employee receiving a sufficient salary to be exempt from overtime compensation requirements.

The trial court concluded Kao was a nonemployee "guest" entitled to no compensation for the 11 months he worked at Joy Holiday before receiving his H-1B visa and that he was exempt from overtime requirements after that time. Kao appealed, and the appellate court reversed the trial court's decision.

Federal and State Law Broadly Define 'Employee'

"Employee" is defined under the federal Fair Labor Standards Act (FLSA) as "any individual employed by an employer" and is broadly construed to encompass virtually "all workers not specifically excepted." The FLSA protects undocumented aliens, making Kao's initial lack of a work permit irrelevant, the court said.

The court noted that the trial court appears to have considered Kao a "trainee" in the months before he received his visa. But, the court said, "Only a person receiving training but no salary, and whose work serves only his or her own interest, is a nonemployee trainee under the FLSA." The court then noted that Kao received a salary and that there was insufficient evidence that Kao's work at Joy Holiday served only his interest.

The tasks Kao performed at Joy Holiday were not "similar to that which would be given in an educational environment" but were "commercial tasks benefitting the company," the court said. Kao worked the same hours as office personnel and performed tasks that employees normally would perform, including website management, sales calls and distribution of travel brochures.

California law applies an even broader definition of "employee" than does the FLSA, the court noted. An employee is "any person employed by an employer," while an employer is one who "employs or exercises control over the wages, hours or working conditions of any person," and "employ" means "to engage, suffer or permit to work."

Under California law, once a worker comes forward with evidence that he provided services for an employer, the burden is on the employer to show that the worker was a nonemployee trainee. No such proof existed here, the court said, noting instead that all evidence pointed to an employer-employee relationship.

The appellate court further ruled that Kao's salary did not meet federal and state standards for exempt status, concluding that the trial court erred by including nonmonetary benefits when deciding if Kao's salary reached the required threshold for exempt workers. The proper benchmark was Kao's monetary salary, which was below both federal and state salary requirements for exempt status, the court said.

Kao v. Joy Holiday, Calif. Ct. App., No. A147540 (June 15, 2017).

Professional Pointer: The criteria the court weighed when determining that Kao was an employee and not a trainee and therefore was entitled to minimum-wage and overtime pay are the same factors courts use in determining whether students can be considered "nonpaid interns" or whether they must be paid. Employers should keep these factors in mind when deciding not to pay interns. A mistake in classifying student workers may result in a costly lawsuit. 

[SHRM members-only toolkit: Employing Interns]

Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.


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