"Liquidated Damages" in Guest Worker Contracts: Involuntary Servitude, Debt Peonage or Valid Contract Clause?

Abstract

Non-citizen migrant workers who come to the United States on short term work visas, especially H-1B visas, often sign contracts that include a promise to work for the employer for a set period of time. These contracts may include a "liquidated damages clause" that requires the worker to pay the employer a large sum of money if they stop working for the employer, either to switch employers or to return home. Because these sums of money are so large relative to the worker's ability to pay, they prevent workers from leaving employment. This paper examines whether those liquidated damages clauses are enforceable. It suggests that there are two different ways to analyze these clauses: a contract law approach and a free labor approach. The contract law approach, found in state contract law and the statute that regulates H-1B visas, serves the dual purposes of efficiency and compensation. The free labor approach, found in a variety of statutes passed pursuant to the Thirteenth Amendment to the United States Constitution, on the other hand serves the purposes of protecting individuals and society from the ills associated with modern day slavery. This article examines two different prohibitions contained in the free labor approach - prohibitions against involuntary servitude and debt peonage. It explores and explains the differences between these variations on unfree labor, with a focus on the purpose of prohibiting each arrangement. The article then returns to the problem of liquidated damages clauses in guest worker contracts to examine the implications of these competing approaches (contract law vs. free labor) for advocates, courts and Congress.