Client is ending the contract with my company, gave me an unusual offer to work for them directly

Question

I am an FTE for an xyz company. I work as a contractor at my xyz company's client location. I have been working for this client for some time now, more than 6 years and all of the executives from this company know me very well and hold me in high regards. Recently, at client's tech event, CEO (founder) of the client's company approached me directly and took me aside from people to talk about some "work related" stuff. In summary, he told me point blank, that because of budgeting issues, he's planning on ending the contract with my xyz company very soon.

For reference, total of 9 people from my company are working as contractors for this company. I am the most senior person among them and the most knowledgeable when it comes to business needs. I started this project alone.

Coming back to point, this means the contract with all 9 of the xyz employees will end. CEO of the company however, gave me a very odd offer. He asked me if I would be willing to work for him directly. His plan is to cut off the xyz company's rates and hire just the essential guy, me, from the company, since I built everything from the scratch, to manage just handful of (but the most important) apps that we have built for them. This means, they're at a point where the app where 4 of us 9 guys are currently working on, they're willing to just dump it.

I told this CEO that I am still on H1B visa status and am dependent on sponsorship and since I know this client company does not sponsor visa, how would this materialize even just for the sake of argument. He said, I don't have to leave my xyz company, I can still be employed there and work on off hours for my client and that he will just deposit the salary straight to my offshore account in home country.

I have a few questions regarding this odd situation and that can definitely help me come up with a more informed decision. I won't ask you about this offer being moral or ethical, I know its not.

• Given my company doesn't mind dual employment and if I do decide to take it up, would it still be legal for an H1B to work in this arrangement?
• If I decide not to take up the offer, should I inform my xyz company of this? Can this negatively impact my reputation in my xyz company even if I don't take the offer?
• How can I maintain good relations with client after I pass up on the offer? I really don't want to burn the bridges with the CEO. It took me more than 6 years to build those relations.

Answer 1

Given my company doesn't mind dual employment and if I do decide to take it up, would it still be legal for an H1B to work in this arrangement?

Most likely this is illegal unless the client does the correct H1B paperwork as well. You really should discuss this with an immigration lawyer. If you make mistake here, not only could you lose your job, you can lose your Visa, be deported and banned from entering for a long time. Visa fraud is no joke.

See for example: https://www.upwardli.com/resources/can-i-work-for-2-employers-on-an-h1b-visa-rules-explained.

If I decide not to take up the offer, should I inform my xyz company of this? Can this negatively impact my reputation in my xyz company even if I don't take the offer?

If you turn it down, there is nothing much to talk about and I don't see any value on telling your current employer. Why would you?

How can I maintain good relations with client after I pass up on the offer? I really don't want to burn the bridges with the CEO. It took me more than 6 years to build those relations.

Most likely you can't take the offer for legal reasons. If that's the case, just say so. If the CEO is not ok with this, that's their problem and there is nothing you can do about it anyway.

he will just deposit the salary straight to my offshore account

That sounds highly suspicious. Even if the money is in your offshore account, you still need to report it as income on your tax return. I don't think they can pay you legally without issuing a 1099 tax form. Again, take to a lawyer: let's not add tax fraud to Visa fraud.

Answer 2

I am going to only focus on this part of the question.

Recently, at client's tech event, CEO (founder) of the client's company approached me directly and took me aside from people to talk about some "work related" stuff. In summary, he told me point blank, that because of budgeting issues, he's planning on ending the contract with my xyz company very soon....

... He asked me if I would be willing to work for him directly. His plan is to cut off the xyz company's rates and hire just the essential guy, me, from the company,...

...If I decide not to take up the offer, should I inform my xyz company of this? Can this negatively impact my reputation in my xyz company even if I don't take the offer?

Yes you should tell your manager at company xyz. The client has told you that they will be ending the contract. Your employer has 9 people on that contract, they will want to know that their contract is in jeopardy.

Even ignoring the visa issues, the offer to you may violate the current contract between the two companies. You may also be in violation with your employment agreement if you leave your company to work for a client.

If you tell your employer your reputation there will not be hurt. You aren't responsible for the offer being made.

Answer 3

This starts weird and ends up with so many red flags that I would tread very carefully here.

In some countries, hiring contractors for very long periods (several years) is forbidden, and the client ends up having to hire the contractor directly as an employee, so the practice of hiring directly someone who was a contractor until then is not necessarily completely abnormal per se, but:

• They tell you they have "budgeting issues" and need to cut costs. Probably not the best of times to commit with them. If you were an employee you would probably be polishing your CV, looking for other jobs, at that point.

  Initially I thought they could be in a situation where just your specific department is downsizing, but the fact it's the CEO talking to you makes me think otherwise.

  Of course it could just be them cutting out some unprofitable products to focus on those which turn a profit, but the rest of the discussion makes me think it's worse than that.

• Working two full time jobs at the same time is a no-no, especially at that level. Even if both employers allow it (in writing!), this is just insane. One of the two will suffer and not get their money's worth, and you will also suffer. You need rest. You need to be able to concentrate on one set of problems at a time.

  An "employer" who suggests otherwise is just out of their minds. Or they expect to pay you for a part-time job and still expect full-time work from you. How would you handle meetings and other interactions with colleagues "out of hours"?

• The nail in the coffin is that they would be willing to pay you directly on an offshore account, with neither wages nor invoices, no tax withholding, no reporting? This is most likely illegal, and could get both you and your "employer" in trouble.

Remember that while your xyz employer takes a cut of what the client pays, this is probably minor, and there shouldn't be much to save for your client (unless you are being exploited by xyz, which is quite possible for people in your situation, though I hope not -- but before jumping to any hasty conclusions, remember that a good chunk of the difference between what the client pays and what you get is most likely taxes and other payroll items rather than xyz's cut).

Whatever happens, do NOT go the "offshore" route.

Options:

• Your client tells xyz they need to reduce the number of people working for them, they stop the contracts for those they no longer need, you continue as before (but xyz should be looking for new clients to place you if the client fails).
• Your client really wants to hire you directly and remove xyz's cut, they need to do the appropriate work for your visa and to hire you as a real employee. Make sure you check your contract with xyz as there may be clauses which prevent this. Likewise there may be such clauses in your client's contract with xyz. Whether they would be enforceable is another topic.

Anything else is just not a good idea. For someone without the visa issues, one alternative could be to set up your own company and invoice them rather than being a salaried employee (with all the associated pitfalls), but that doesn't apply to you.

Answer 4

He said, I don't have to leave my xyz company, I can still be employed there and work on off hours for my client and that he will just deposit the salary straight to my offshore account in home country.

This is outrageously sketchy for many different reasons:

1. As many other answers have highlighted, this may not be compatible with your H1B status. That's enough to say "no" all by itself, unless an immigration attorney (who works for you, not either company!) tells you that your H1B would not be affected.
   • Even if it is H1B legal, there can be further complications if either employer later wants to change the arrangement.
2. Most employers would prohibit this arrangement, especially in the tech field (you mention working on an "app," so I assume you're some kind of SWE). Check your employment contract and/or handbook.
   • It sounds as if he plans to work around that problem by keeping it a secret from xyz. That's a terrible idea, because it is far less plausible that you'll be able to avoid breaking the H1B rules when one of the companies does not know about the other (not to mention that xyz might sue you if they find out about it).
3. Direct deposit into a non-US bank is complicated and legally fraught. As far as I can tell, it is legal, but must go through a special process to allow for OFAC scrutiny. On top of that, he would also need to issue the usual W-2 or 1099 tax forms. Based on all of the other red flags, I do not believe he is proposing to do any of those things - he's instead proposing to wire you the money under the table, and leave you holding the bag when the government figures out that your taxes are unpaid and that you're dodging OFAC. I do not know exactly what the law says about OFAC, but in general, avoiding government scrutiny of money is often a federal felony - regardless of whether you're concealing any underlying wrongdoing.

How can I maintain good relations with client after I pass up on the offer? I really don't want to burn the bridges with the CEO. It took me more than 6 years to build those relations.

You have to protect yourself first. Do not do anything that risks your H1B or otherwise exposes you to legal liability, even if that means writing off six years of bridge-building with this guy. Be polite, be professional, but be firm, and do not let one random person push you into doing something that puts your entire career at risk. There will be other clients, or other employers.

Answer 5

Your biggest concern should be your H1B situation. While an H1B holder is allowed to own a business, they're not allowed to work in the business. See here.

The client could pay you any way you can agree upon. Whether or not the client issues a 1099, you'd be responsible for reporting the income when you file taxes.

Tax issues aside, if the client wants to employ you, then they need to do so under a proper H1B. If you do otherwise, you'll wreck your immigration status and risk permanent deportation. Not worth it. You are not liable for if the client doing this breaches any agreement between your current employer and the client. If this conduct is forbidden in your employee agreement (such as a noncompete clause), then you're liable there.

I would keep the conversation about the 9 xyz employees to myself, if I were you -- that's none of your business, so to speak. Start looking for another job that will sponsor H1B.

I am not an attorney, and this does not constitute legal advice. Tread lightly.