US government, Cognizant eye early resolution to visa misuse case

The move, depending on the outcome, could prevent a lengthy legal process and pave the way for a settlement.

On 15 December, Cognizant and Jean-Claude Franchitti, formerly an assistant vice-president with the company acting as a whistleblower for the government, filed a joint motion to the United States Court of Appeals to do away with a New Jersey district court’s order from two years ago that permitted a court trial on claims of Cognizant’s alleged withholding of H-1B visa fees and taxes to the US. The motion has been reviewed by Mint.

The genesis of the case goes back to 2023 when Franchitti, representing the US government, said Cognizant had knowingly concealed, misused, and brought employees to the US on other visas, thereby paying lower dues to the government.

Franchitti said Cognizant applied for L-1 and B-1 visas for certain employees who did the work coming under the ambit of H-1B visa holders, thereby depriving the (US) government of higher filing fees required for H-1B visas. According to Franchitti’s complaint, the IT outsourcer “depriv[ed] the government of $1,000 [or] $6,300 in filing fees" per visa.

As of now, a H-1B, L-1, and B-1 visa application fee costs $6,460, $5,460, and $160, respectively.

While H-1B visas allow skilled immigrants to work in the US for specialised roles for which there are talent shortages, L-1 visas are for managerial employees wanting to transfer to the US whereas B-1 visas are for short business trips.

Big users of H-1B visas

Homegrown IT outsourcers are the largest users of H-1B visas in the US. Cognizant got 3,172 H-1B visas last fiscal, making it the eighth-largest user of such visas. Tata Consultancy Services Ltd, or TCS, is the only large homegrown IT outsourcer to use more H-1B visas.

The Cognizant case is not the first such one in US courts over visa violations by Indian IT outsourcing companies. In the past, TCS, Infosys Ltd, and HCL Technologies Ltd have been engaged in court cases pertaining to non-immigrant work visas.

Franchitti added that Cognizant paid its H-1B employees lower wages than the minimum amount established by law, thereby depriving the government of payroll tax revenue.

In contrast, Cognizant said that it was not bound to pay extra money to the US government for visas it did not apply for. It also said it was not liable to pay the government taxes for salaries it did not pay those employees.

Still, in August, 2023, the New Jersey district court held that Franchitti’s case had merit as he “alleged [an] ongoing conscious business practice to circumvent the immigration regulations," which resulted in “reduced government revenue".

Notably, the joint appeal states that there were contradictory verdicts by other district courts in cases involving other homegrown IT outsourcers.

As the parties went on with the discovery process after the New Jersey court’s verdict, two separate orders by other courts were passed opposing the New Jersey Court order. Then, both parties decided that a temporary order had to be sought.

“An interlocutory appeal could eliminate the need for these burdens with virtually no downside. Whichever view of the law is correct–Franchitti’s or Cognizant’s–the benefits of knowing that now are immense. If Franchitti’s view is correct, knowing that now may well facilitate case resolution via settlement. If Cognizant’s view is correct, the parties can avoid the burdens of litigating a full case. If neither party is correct–that is, if the Court fashions a middle ground–the case could be streamlined substantially and, again, case resolution via settlement possible," read the joint appeal dated 15 December.

A lengthy court case and potential settlement fees could harm Cognizant’s reputation among clients and put it on the radar of increased scrutiny by US government institutions, at a time the IT sector faces low demand and automation-related revenue deflation.

Cognizant did not respond to Mint's emailed queries.

Sidestepping an expensive court battle

This development comes on the back of contrasting rulings by various courts in the US and the willingness by both parties to avoid a lengthy court battle.

The case gains limelight as US lawmakers have clamped down on talent mobility in the world's largest economy, increasing the H-1B visa application fee to $100,000, proposing an offshoring tax on companies that hire foreign employees, and accusing Indian IT outsourcers of misusing H-1B visas and depriving Americans of jobs.

At least one expert said these charges might be hard to prove for the US government.

“These charges are going to be hard to prove. However these charges do act to advance the current administration's political narrative, and hence will be held up to the press to show that the administration is taking action to protect US jobs," said Peter Bendor-Samuel, founder of Everest Group, a Texas-based IT research firm.

Cognizant, which follows a January-December calendar year, ended the third quarter with $5.42 billion in revenue, up 3.24% sequentially and 7.36% year over year. The company beat analyst expectations and raised its annual guidance for the third straight quarter.

It now expects revenue of $21.05-$21.1 billion for 2025, translating to 6.6%- 6.9% annual growth, up from the earlier range of 4.7%–6.7%.

Cognizant is represented by Gibson, Dunn & Crutcher LLP, a Los Angeles-based law firm. On the other hand, Franchitti is represented by Washington-based Kotchen & Low LLP. Emails sent to both law firms on Sunday went unanswered.

For Cognizant, this is not a first brush off with US lawmakers surrounding H-1B visas. On 24 September, two senators, including Republican Charles E. Grassley and Democrat Richard J. Durbin questioned Cognizant’s hiring practices.

“Last year, a federal jury concluded that Cognizant intentionally engaged in race-based discrimination by favoring South-Asian H-1B workers over American employees. The jury also found that Cognizant’s conduct warranted punitive damages. Cognizant is doing itself no favors by continuing to replace Americans with H-1B workers on the heels of this verdict," read the 24 September letter to the company CEO Ravi Kumar.