November 1996

Workplace Labor Update - Employers Beware of Assault on H-1B Visa – November 1996

14 min

Hightech companies and employers in the American health care industry are no strangers to the H-1B nonimmigrant visa category for professional or specialty occupation employees. Many of these employers got a scare last month when the Immigration and Naturalization Service ("INS") indicated that the annual ceiling of 65,000 H-1B visa approvals for Fiscal Year 1996 was reached in mid-August and that such visas would not be available for new hires until October 1, 1996. INS subsequently took a recount and discovered that the limit had not, in fact, been reached, but in the meantime, employers in the computer and biotech industries in particular experienced processing delays that impacted many crucial ongoing research and development projects.

But the confusion over actual numerical limits i not the biggest concern of employers using the H-1B program, as it is called. For years employers in the high-tech fields have insisted that the program gives them access to a workforce with skills simply not available in the domestic labor market. To these employers - both domestic multinationals and their local technology suppliers, as well as foreign companies trying to establish or solidify their place in the American market- competition in international business invariably involves the ability to transfer and employ foreign skilled workers across international borders. There is increasing competition for global human resources - for access to "the best and the brightest" talent the world has to offer.

But the United States government increasingly takes a different view of the H-1B visa program. Last year Robert Reich, President Clinton's Secretary of Labor, told Congress that the H-1B program is "the most urgent candidate for reform" in the nation's legal immigration system. "The program we have today has been turned into a sham by some employers," Reich stated. "Too many employers are using the program as a back door to avoid their responsibility to train U. S. workers for these important high-tech jobs." He went on to outline a series of reform proposals that would restrict an employer's access to H-1B visas even further.

As if to underscore Reich's point, the Department of Labor's ("DOL") Inspector General ("IG") - independent of Clinton administration policy makers - issued a report on May 22, 1996 that concluded the program was being "manipulated beyond its intent" to fill entry level jobs and positions requiring merely a bachelor's degree with foreign workers possessing nothing more than ordinary skills. The IG called for an end to the H-1B program in its present form and the imposition of a variety of restrictions that Reich had asked Congress to approve. Responding to the IG report, as it is routinely given opportunity to do, the Department of Labor's Employment and Training Administration ("ETA") agreed with the IG's conclusions and went on to indicate that "[i]f Congress fails to pass legal immigration reform to change the current system, DOL/ETA intends to make as many administrative and regulatory improvements as can be implemented under current law to strengthen the [permanent labor certification and H-1B] programs."

As routinely happens when the government and regulated community take such disparate views of a regulated program, the federal courts in Washington were asked to address a challenge to the current system at the same time that the Clinton administration was staking out its position on future reforms. In 1995, the National Association of Manufacturers brought an action in the United States District Court for the District of Columbia seeking to over turn DOL's regulations governing H-1B Labor Condition Applications. On July 22, 1996, the Court issued a judgment in the case, giving employers some interim relief from six of the more burdensome regulatory provisions. Specifically, the court struck down provisions relating to the

placement of H-1B workers at temporary worksites and certain wage documentation requirements.

The relief offered to employers of H-1B workers by the decision is temporary, at best. Anticipating an adverse court decision, DOL republished most of the challenged provisions in modified form and will continue to enforce them. Indeed, given the government's strong political stand on the H-1B program, the Court's decision will not be the last word. Accordingly, employers should be prepared - at best - for reinstatement of these modified rules, and - at worst - for legislative and regulatory changes severely restricting the program, perhaps beyond recognition.

The H-1B Visa Program

The Immigration and Nationality Act, as amended, defines an H-1B nonimmigrant as "an alien coming temporarily to the United States to perform services in a specialty occupation ... and for whom the Secretary of Labor has determined and certified to the Attorney General that the prospective employer has an approved labor condition application . . ."

In order to obtain permission to employ an individual in HlB status, an employer must first submit a labor condition application to DOL, attesting to certain wage and working condition requirements. Upon certification of the application, the employer must file a petition with INS on behalf of the individual establishing that the position it seeks to fill qualifies as a specialty occupation and that the person it wishes to employ possesses the necessary professional qualifications for employment in that occupation.

Specialty Occupation. The H-1B nonimmigrant visa category is thus intended for use by United States employers who seek to employ temporarily foreign nationals who will perform services in a "specialty occupation." These occupations are strictly defined by statute and regulation as positions which require the theoretical and practical application of a body of highly specialized knowledge and the attainment of at least a bachelor's degree in a related academic discipline. To establish eligibility, an individual must be shown to be a "professional" in his or her chosen field.

H-1B Labor Condition Application Rules

Labor Condition Application. Any U.S. employer seeking to hire an H-1B worker must first submit a Labor Condition Application ("LCA") to DOL prior to filing an H-1B petition with INS. DOL is only permitted review the application to see if it is complete and signed by the employer and whether the employer has previously been disqualified from employing HlB workers. The purpose of the LCA is to ensure that employment of a foreign national will not adversely affect the wages and working conditions of American workers similarly employed. Thus, the employer must attest that:

  • it will pay all foreign nationals employed in H-1B status in the same occupational classification at the place of employment the local prevailing wage or the actual wage it pays to other workers in that occupation, whichever is greater;
  • it will provide working conditions that will not adversely affect the working conditions of similarly employed U.S. workers;
  • there is no strike or lockout as the result of a labor dispute in the occupational classification at the place of employment; and
  • it has notified its employees' bargaining representative in the occupational classification of its intent to employ an HlB foreign national, or, if there is no bargaining representative, that it has posted notice of its intent at the place of employment.

In addition, the employer must provide specific information requested in the application concerning the number of foreign nationals to be employed; the occupational classification in which they will be employed; the job duties, wage rate and conditions under which they will be employed; the date on which employment will begin and the specific duration of the proposed employment.

Employer Wage Requirements. DOL regulations govern the acceptable methods for calculating the prevailing wage in the local labor market. If the occupation is covered by specific federal laws, the wage established by those laws will be the prevailing wage. If the occupation is covered by a union contract, negotiated at armslength, the wage established by the collective bargaining agreement will be deemed the prevailing wage. If neither of these methods are applicable, the employer may obtain a prevailing wage determination from either the local state employment service or from an independent, authoritative published survey. The employer must disclose the source and retain documentation on how the prevailing wage was determined, and it must update that determination upon filing of a new or amended LCA after three years.

Among the most controversial provisions in DOL's rules pertaining to H-1B workers, employers must develop written, objective criteria for compensating all similarly employed workers and must apply that criteria evenhandedly to the workforce as a whole. The employer's system must be sufficiently detailed to permit DOL investigators to arrive at the calculated wage without further explanation. Ad hocsalary determinations based upon what the market will bear at the time of each hire - which is the normal basis for compensating highly paid professionals and managers - are prohibited for employers using the H-1B program. Although the court struck down these actual wage documentation requirements, DOL is expected to reassert such requirements.

Postings and Multiple Worksites. Another challenged provision in the DOL regulations requires employers, if the position to be filled is not subject to a collective bargaining agreement, to post notice of its intention to employ H-1B nonimmigrant workers at all worksites where workers will actually "work" within the geographical "area of intended employment" included within LCA. The notice must state the specific wages paid to the subject H-1B worker(s) and inform readers of the right to file complaints if they believe the employer has violated any provision of HlB employment.

Of particular concern to employers who must send H-1B employees to work in other offices or to customer sites, DOL and INS have interpreted the relevant statute and regulations to require submission of detailed itineraries and LCAs- with wage determinations and postings listing all worksites at which H-1B workers are to be assigned. INS requires that petitions indicating that an individual will work in more than one location be supported by (1) an itinerary of all proposed worksites, and (2) an LCA listing all of the locations in the itinerary. If the LCA does not reflect each location, INS will not approve the petition. DOL requires a wage determination for, and separate posting at, each worksite, even if the worksite in question is a different company.

An employer is permitted to forgo posting at worksitesoutside the local employment area specified on the LCA, provided it pays wages to the H-1B workers equal to what they were being paid in their local area, plus aper diem and travel allowance equal to what is required by regulation for federal employees on travel. After a cumulative period of 90 workdays at any worksite in a new geographic area, the employer is obligated to determine the prevailing wage in the new job market and to file a new or amended LCA before permitting its H-1B workers to continue performing services at such worksite. This certified LCA must then be filed with the INS. However, no amended H-1B petition will be required unless there is a change in the job duties or other "material change" in employment.

The Court struck down both the requirement for postings at "temporary" worksites, as well as the per diem obligation and 90day cumulative limitation on temporary placement of H-1B workers. However, DOL is expected to reassert these requirements.

Public Access to Documentation. Finally, although no written material need be submitted to DOL with the LCA, the employer must make available certain documentation for public inspection within one working day of filing of the application at either the principle place of business or the actual place of employment. A copy of the actual LCA must be provided to the HlB employee. In addition, actual payroll records on all employees in the foreign national's occupational classification must be maintained. These records need not be made available for public inspection, but must be available to DOL, upon request. All supporting documentation must be maintained for at least one year beyond the conclusion of the period of employment. The public access requirements survived the Court challenge and remain in effect.

DOL Initiated Investigations. DOL will accept complaints from any aggrieved party about an employer's failure to meet a specified condition or for misrepresentation of a material fact in an H-1B application. If DOL determines that a reasonable basis for the complaint exists, it will initiate an investigation during which the employer will be provided opportunity for a hearing. In addition, DOL has asserted its independent authority to initiate investigations into presumed improprieties in the H-1B employment practices of any employer using the program. DOL is authorized by law to assess substantial penalties if it determines that an employer has committed a violation. These may include imposition of civil fines and awards of backpay, as well as debarment of the employer from the employment of foreign nationals in any visa category for up to one year if it finds a pattern of "willful violations." These provisions of the DOL regulatory program, too, were left intact by the Court.

Recommendations to Employers. In any effort to meet their human resource needs, companies must adapt and respond to the current political climate in the United States. Adaptation will require the educated use of those visa options available under the law to secure the international personnel required. Employers must develop comprehensive programs to facilitate the international transfer of personnel and the on campus recruitment of highly skilled engineering and science graduates. These programs should be directed to ensure full compliance with the government's ever-increasing procedural and paperwork requirements. In particular, H-1B LCA requirements related to wages, notice, and public availability of documents must be followed scrupulously. The fate of complex visa situations - or even routine future visa requests - may depend on demonstrating such compliance as well as developing clear lines of communication with government agencies responsible for immigration, including DOL, INS, and consular offices overseas.

Reich's Congressional testimony coupled with the IG Report and ETA's response point clearly to new restrictions on H-1B workers to be imposed by statute or regulation. In addition, DOL likely will give ever higher enforcement priority to H-1B LCA investigations during the next few years, particularly in a political environment becoming increasingly suspicious of both legal and illegal immigration. To cope with this increased enforcement activity, employers of H-1B workers should adopt conservative, defensive hiring strategies to reduce exposure to civil penalties that can range from fines to potential visa debarment. At the same time, care must be taken to establish a profile of a company dedicated to the development of an American workforce. This will require investment in training and recruitment programs designed to develop the talent now in demand in the domestic workforce.

Employers must be careful about what they say and don't say when recruiting employees, or they may face claims of fraud and misrepresentation. A recent case decided by a Maryland appeals court shows that an employer can be liable forfailing to disclose to an executive recruit important terms of employment. Lubore v. RPM Associates, Inc., 109 Md. App. 312, 674 A.2d 547, cert. denied, 343 Md. 565, 683 A.2d 177 (1996).

According to the executive, he was employed in a lucrative position when another company expressed interest in hiring him as a marketing and sales executive. Several discussion were held over the next year, during which compensation and job responsibilities were discussed. Eventually, the company sent a written offer setting forth the terms of employment, including details of the compensation offered. After further discussion, the executive orally accepted the offer.

Shortly after the acceptance, the executive resigned his current position. Three weeks later, the company that recruited him sent him a letter "reaffirming" the offered and accepted terms. The letter also stated that all employees were required to sign a contract.

On the executive's second day of employment, he was presented with a fifteen page employment contract. According to the lawsuit, the agreement contained a number of terms that had not been disclosed, including a liquidated damages clause, an employment-at-will clause, non-competition provisions, and a provision allowing the company to decrease compensation. The executive refused to sign the agreement, and was terminated.

The executive sued for fraud, negligent misrepresentation, and breach of contract. The appeals court agreed with the company that it did not breach a contract when it terminated the executive because it found that the executive was an at-will employee, and could be terminated at any time.

However, the appeals court concluded that, if the executive could prove his allegations, the company may be liable for fraud and/or misrepresentation. The court determined that, even if the statements made by the company were not false or misleading, it may have mislead the executive through its failure to disclose significant terms. A "partial and fragmentary" disclosure, if misleading, can lead to liability.

The court also ruled that the company may have had a "special relationship" with the executive and owed him a duty not to negligently misrepresent the terms of the deal. The company knew the executive was resigning a secure and highly paid position, and would suffer a major loss if it misrepresented significant facts about the deal. Also, the court pointed out that the company and executive dealt with each other over an extended period, and intended to create a long-lasting relationship. These circumstances may create such a special relationship.

The company also argued that the executive had suffered no damages as an at-will employee, the company was entitled to terminate him at any time. As noted, the court agreed that he was at-will, but concluded that his damages (if he could prove his allegations) would be based on the loss of his prior position, not his termination from the company.

The court's ruling meant the executive would get the chance to prove his allegations against his employer of fraud and misrepresentation. For other employers, it tolls a warning about recruiting, particularly at the executive level. Talented executives will often hold high-paying, secure positions, and must be convinced to give up those positions. Employers must be careful not to cause a candidate to change his or her circumstances based upon information that could be considered misleading, even if the candidate is to be an at-will employee. Employers should consider the following during negotiations (and before the candidate leaves his or her current position):

  • Don't make promises you aren't able or willing to keep
  • Don't oversell or misrepresent the job or the health and expectations of the company
  • Be careful with offer letters don't leave out material terms, and make it clear that it does not encompass every term of employment
  • Don't disclose only the "goodies;" make sure the candidate is aware of the obligations and restrictions (such as at-will status, non-competition clauses, etc.) as well
  • Do make sure the candidate is not currently restricted by an employment contract or non-competition agreement.