On March 27, 2001, a senior INS official confirmed that present INS policy provides that an H-1B employee goes out of status as soon as his or her H-1B employment is terminated (i.e., he or she quits or is fired).  There is no grace period, not even a few weeks or days, in which to find other employment.  [CLICK HERE FOR THE FULL TEXT OF THIS POLICY LETTER]

This radical and unrealistic interpretation of the laws is significant for many reasons.  The first is that the H-1B worker is “removable” (deportable) on the day the employment ends. 

The second and more likely consequence is that the H-1B employee can no longer extend the H-1B status (through the H-1B petition of another employer) or change to another nonimmigrant status.  (The INS generally requires now paycheck stubs to be submitted with the H-1B petition as proof of maintenance of status).  The result may be that in order to work for another H-1B employer the employee must leave the U.S., then return after the new H-1B petition is approved.

There are several possibilities for avoiding this result.  The policy letter confirms that the late filing of the new petition to extend H-1B status can be excused due to “extraordinary circumstances.”  Also, an employee who continues to receive his or her salary is considered to be “benched”, and still in valid H-1B status, if the salary promised on the H-1B petition continues to be paid.  Terminated H-1B employees should therefore try to negotiate a continuation of the employment relationship (through continuation of the salary) until a new job offer can be found and a new H-1B petition submitted.  Finally, before the actual termination date, the employee may be able to remain in a valid nonimmigrant status by filing an application to change to another nonimmigrant status (such as visitor's or student status).

Update, December 9, 2008.  The USCIS confirms this policy in response to increased layoffs and business failures:  "If the underlying H-1B petition is already approved, the general rule is that the approval of any petition is automatically revoked if the petitioner goes out of business, as the employer-employee relationship has ended. If the [USCIS] determines ineligibility based on information not contained in the record of proceeding, the petitioner will first be put on notice with intent to revoke but will be given the opportunity to overcome with evidence of a successor-in-interest to the original petition.  Once the underlying H-1B petition is revoked, the Beneficiary's H-1B status terminates as of the date the employment ceased, pursuant to Matter of Lee, 11 I. & N. Dec. 601 (Reg. Comm. 1966), or the date the petition was revoked, whichever is later. The Beneficiary is in violation of status the day after the employment was terminated."  (AILA/VSC Liaison, 12/9/08).

Despite this guidance from the USCIS, we have found in our practice that a period of unemployment of less than 30 days (between successive H-1B employers) does not defeat a petition for change of employers or extension of H-1B status.