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Foreigners working in the United States who claim they were cheated out of their tax refunds have won the right to have their employment dispute heard in American courts, defeating efforts by India’s largest conglomerate to force arbitration overseas. The 9th U.S. Circuit Court of Appeals on July 31 denied a bid by Tata America International Corp. to compel arbitration and dismiss the class action that alleges Tata’s non-citizen U.S. employees are required to sign over their federal and state tax refund checks to the company. Tata America and its parent corporations, Tata Consultancy Services Ltd. and Tata Sons Ltd., have argued that the dispute should be arbitrated in India rather than here, claiming the plaintiffs had entered into written agreements to arbitrate disputes in Mumbai. Tata also argued that its U.S.-based foreign employees had “explicitly agreed” that their employer would submit all tax returns and keep any excess taxes paid. The plaintiffs contend that requiring them to sign over any refund checks violates federal and California employment laws. The 9th Circuit found that there was no mutual agreement between the employee and employer to arbitrate legal disputes, so the claim will be litigated in the United States. Partner Michael Rubin of San Francisco’s Altshuler Berzon, who argued the case before the 9th Circuit for the plaintiffs, said the ruling sends a strong message to companies everywhere: “Workers who are sent to America to work are entitled to the rights and protections of American law and to have the American courts available to vindicate those rights,” Rubin said. “Tata wanted to force them into a one-sided arbitration forum 8,000 miles away from their workplace, before handpicked arbitrators applying Indian law. That forum would not have been adequate to protect workers’ rights.” Partners Robert Steiner and William Escobar and associate Kevin Smith of New York’s Kelley Drye & Warren, who are representing Tata America, were unavailable for comment. In court documents, Tata denied allegations that it engaged in unjust enrichment by keeping employees’ tax refunds, arguing “the tax refunds that plaintiffs allege were converted were never theirs in the first place.” According to Tata, the plaintiffs had entered into agreements signing power of attorney over to the company to file their state and federal tax returns. They received monthly paychecks in amounts agreed to in advance. If more taxes were owed at the end of the year, the company paid them out of its own pocket. If too much had been paid in taxes, the company would receive the refunds. The lawsuit, Vedachalan v. Tata America International Corp., was filed in 2006 in federal court in the Northern District of California. The proposed class consists of thousands of current non-citizen U.S. employees of Tata working in the United States, plus former Tata employees dating back to 2000. The plaintiffs are seeking an injunction preventing Tata from requiring employees to endorse their tax refund checks over to the company to the extent it is still doing so. In addition to tax refund issues, the complaint claims that Tata has paid its employees less than promised, has failed to pay its employees overtime pay and misclassified them as exempt from overtime, and has failed to compensate employees for earned but unused vacation pay. “The court’s ruling ensures that plaintiffs and the thousands of workers they seek to represent will have their day in court in the United States before a neutral judge knowledgeable about American labor laws,” said partner Kelly Dermody of San Francisco’s Lieff Cabraser Heimann & Bernstein, co-lead counsel for plaintiffs.

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