This particular provision is not an uncommon tool where employees take on the costs of sponsoring immigrant employees or providing specialized training. The TVPA challenge requires employment lawyers to rethink this strategy. It is worth pausing to note here that such liquidated damages might have been questionable from the start, for two reasons: first, such provisions are disfavored under Pennsylvania law; and second, the purpose of this type of provisions is probably not to recoup the costs, but rather to deter the employee from leaving. Under Pennsylvania law, a court will only enforce this type of liquidated damages provision where actual damages in the event of a breach are difficult to ascertain. Pantuso Motors Inc. v. Corestates Bank, N.A., 798 A.2d 1277, 1282 (Pa. 2002). Further, a court will not enforce a liquidated damages provision if it amounts to a penalty. Id. A penalty is a provision for fixed damages in the event of a breach that is intended as punishment, “the threat of which is designed to prevent the breach.” .

When Baldia complained that RN Express Staffing had not properly paid her, her supervisors, named as a defendants in the lawsuit, met with her to advise her that they would enforce the liquidated damages provision if she did not complete her three year term. In a particularly troubling set of allegations, Baldia states that her supervisors reminded her of this liability and then told her to “refrain” from complaining further about her wages. Baldia pleaded that she was threatened with legal action and psychological, financial, and reputational harm if she did not continue to work for RN Express Staffing.

RN Express Staffing moved to dismiss the complaint, arguing that the threat alleged by Baldia was not the kind of threat the TVPA was intended to address. The Court disagreed, joining a growing a number of courts that have permitted this use of the TVPA to continue, some as class actions. See, e.g., Magtoles v. United Staffing Registry, Inc., 2021 WL 6197063 (E.D.N.Y. Dec. 30, 2021)

The Southern District focused its analysis on 18 U.S.C. § 1589 (“Section 1589”), citing the intent of that provision “to broaden the punishable conduct under the TVPA beyond what constitutes involuntary servitude”. Section 1589 prohibits knowingly providing or obtaining labor or services by means of harm beyond violent or physical harms, including by means of abuse or threatened abuse of law or legal process; or by any scheme plan or pattern that would cause the person to believe that, if they did not provide the work, they could suffer serious harm.

The Southern District found that the threat to sue Baldia to obtain the liquidated damages should she not serve her full three-year term stated a claim for violation of the TVPA where the employer actually threatened to enforce the provision. RN Express Staffing argued that the threat was a “permissible warning”, but the court found that Baldia had adequately pleaded that the liquidated damages provision was unenforceable under New York law. The court noted, that the provision really amounted to a form of compulsion of an immigrant employee to remain in the job to avoid the liquidated damage provision. Further, the court noted that RN Express Staffing’s damages were “easily ascertainable” as they had previously employed more than 100 Filipino nurses.

Notably, the court also found that Baldia stated a claim for abuse of the immigration sponsorship process by misrepresenting her rate of pay, and by luring her to leave the Philippines to work for a particular rate of pay, and then changing the rate of pay. They then used the threat of liquidated damages to dissuade her from complaining about it.

Finally, the Southern District noted that Plaintiff had adequately pleaded the level of intent required under Section 1589. Section 1589 requires that the defendant “knowingly” provide or obtain labor through wrongful means. The court found that Baldia pleaded sufficient facts so support a claim that RN Express Staffing and her supervisors knowingly threatened her and that they intended her to believe that she would suffer serious harm if she left their employ. The court noted that the individual defendants, her supervisors, controlled Baldia’s work schedule and supervised her work, and that this role supported Baldia’s evidence of intent. In other words, the court allowed the case to proceed as to intent because all defendants intended the “legally dubious” liquidated damages provision to force Baldia to stay at RN Express Staffing.

The Southern District’s decision in the Baldia case adds a level of risk to liquidated damages provisions in these types of employment agreements. Before Baldia and similar cases, these types of provisions were questionable, especially in the immigration context, but the risk was that a court would not enforce the liquidated damages provision. Baldia arguably makes such provisions actionable as a violation of the TVPA, and includes potential liability for individuals who recruit such employees and supervise their employment. While such provisions never served as an effective retention tool, Baldia and similar cases highlight the importance of actual human- resource-based retention strategies as the best way to retain valuable employees.

Patricia Collins is a Partner and Employment Law Chair with Antheil Maslow & MacMinn, LLP, based in Doylestown, PA. Her practice focuses primarily on employment, commercial litigation and health care law. Patricia Collins can be contacted at 215.230.7500 ext. 126.