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February 13, 2009
Akshat Tewary, Esq.

It is now common knowledge that the U.S. economy is in a state of recession. While theories abound as to the root causes and expected duration of the current state of economic stagnation, what is clear is that most businesses have been affected in one way or another. Employers of H-1B workers are no exception to global trends, and they too have been negatively affected.

Complicating matters for H-1B employers is that the economic downturn and other independent factors have led to changes in government policies regarding the H-1B program. Various message boards and the all-too-familiar H-1B rumor mill have generated grave doubt as to whether the H-1B program itself is in jeopardy. While the H-1B visa system is continually evolving, we are happy to state that "reports of its death have been greatly exaggerated." [1]

For the most part,[2] the actual statutes and regulations underlying the H-1B program have remained unchanged in the past couple of years. What has changed is the interpretation and orientation that various government actors have taken towards the program. This article seeks to briefly summarize some of the recent trends in the area, and provides the author’s bottom line assessment of what these trends mean for H-1B employers and employees.

Recent Congressional Legislation

The year 2007 saw a concerted effort by members of the Congress to pass comprehensive immigration reform (CIR) legislation. While various proposals and amendments were considered, no concrete or substantial immigration legislation resulted from the debates, which had essentially devolved into bickering between the pro-immigration and the pro-enforcement (anti-immigration) lobbies. The H-1B program played a small part in the overall CIR theatrics, and the same proponents and opponents [3] of the program continue to make their voices heard to this day. The Obama administration is expected to renew the push towards CIR legislation later in 2009 or early 2010 after legislation focused on the economy has been fully implemented. Since the economy is a priority, it is unlikely that the H-1B cap will be raised in time for the impending April 1, 2009 deadline for cases filed under the Fiscal Year 2010 H-1B Quota.

On February 10, 2009, the Senate passed its version of the American Recovery and Reinvestment Act of 2009, also known as the economic stimulus plan. The plan has been reconciled between the Congressional House and Senate, and was signed into law by President Obama on Tuesday, February 17, 2009.[4] The final version of the plan includes an amendment by Senators Bernie Sanders (I-Vt.) and Charles Grassley (R-Iowa) that led to the following provision being included in the bill:

Sec. 1610. HIRING AMERICAN WORKERS IN COMPANIES RECEIVING TARP FUNDING.

(a) Short Title.--This section may be cited as the ``Employ American Workers Act''.

(b) Prohibition.--

(1) IN GENERAL.--Notwithstanding any other provision of law, it shall be unlawful for any recipient of funding under title I of the Emergency Economic Stabilization Act of 2008 (Public Law 110-343) or section 13 of the Federal Reserve Act (12 U.S.C. 342 et seq.) to hire any nonimmigrant described in section 101(a)(15)(h)(i)(b) of the Immigration and Nationality Act (8 U.S.C. 1101(a)(15)(h)(i)(b)) unless the recipient is in compliance with the requirements for an H-1B dependent employer (as defined in section 212(n)(3) of such Act (8 U.S.C. 1182(n)(3))), except that the second sentence of section 212(n)(1)(E)(ii) of such Act shall not apply.

(2) DEFINED TERM.--In this subsection, the term ``hire'' means to permit a new employee to commence a period of employment.

(c) Sunset Provision.--This section shall be effective during the 2-year period beginning on the date of the enactment of this Act.

This amendment requires that any company that is a recipient of funding under the Troubled Assets Relief Program (aka TARP) shall be deemed to be "H-1B dependent" for a period of two years. A list of TARP recipients includes major financial institutions across the country, with the highest concentrations situated in New York, California and North Carolina.[5]

Under existing law, a formula comparing the number of employees with the number of H-1B employees would determine a company’s H-1B dependency status. [6] However, under the new law, all TARP recipients would also be considered H-1B dependent regardless of how many H-1B employees they have.

"H-1B dependent" employers have the same rights and obligations as non-dependent H-1B employers, except for certain additional attestations. At the time of filing a Labor Condition Application (LCA) for an H-1B employee, a dependent employer must attest to the fact that there is no displacement of any U.S. workers in its workforce or a secondary employer’s workforce for a 90 day period before or after the filing of the H-1B petition. Since most, if not all, of the TARP recipients are expected to experience layoffs, it will be difficult for these companies to file H-1B petitions for their employees and still claim that the H-1B worker is not displacing a U.S. worker’s position. However, it is arguable that Sec. 1610 would not apply to third party employers placing their employees at TARP-recipient companies as independent contractors, as the statutory language is silent on the issue. Also, the USCIS has confirmed that the new restriction will not apply to extensions filed by current H-1B employees of TARP recipients.

Bottom Line: The TARP H-1B amendment does not affect the vast majority of H-1B employees/employers. Meanwhile, more favorable legislative changes in the H-1B program are still needed. Stakeholders in the immigration process should continue to impress upon their Congressional Representatives and Senators the effects that the current process has on their businesses and lives, and suggest specific changes that would improve that process.

Office of Fraud Detection and National Security Report on H-1B Compliance

In October 2008, the Office of Fraud Detection and National Security (FDNS), a division of the USCIS, reported on results of a survey it had undertaken of 246 randomly-selected H-1B cases drawn from a total population of 96,827 approved, denied, or pending I-129 petitions filed between October 1, 2005 and March 31, 2006. The FDNS investigators conducted interviews, site visits and reviews of various databases and public information sources in compiling data for the Report. Some of the key results of the survey were that, for the surveyed cases, approximately:

· 11% involved failure to file an LCA covering a beneficiary’s work location,

· 5.6% of the beneficiaries were receiving below the prevailing wage,

· 4% of the cases involved document fraud, and

· 3% of the employers were operating shell businesses.

Opponents of the H-1B program championed the report as evidence of wide-spread abuse in the program.[7] Other commentators have pointed out that the report overstepped jurisdictional bounds,[8] and made exaggerated claims of fraud drawn from an "absurdly small" sample size.[9] In our view, even if the percentages stated in the report were accurate, their magnitude hardly warrants the uproar that the report has generated. Indeed, one might reasonably expect many U.S. businesses (possibly well in excess of 11%) to be falling short in some area of their compliance responsibilities under one or more of the numerous regulatory regimes that might apply to them (such as Sarbanes Oxley, the Securities and Exchange Act and related state Blue Sky regulations, ERISA, Fair Labor Standards Act, Family and Medical Leave Act, environmental regulations, HIPAA and countless others). Since the issuance of the report, USCIS has indicated that it will pay closer attention to weed out fraudulent H-1B cases,[10] and indeed there have been numerous reports of increased random audits and investigations [11] being conducted by USCIS-FDNS as well as the Department of Labor. However these audits have not imposed any additional substantive requirements on employers, but rather seek to ensure compliance with existing regulations.

Bottom Line: Legitimate and bona fide petitions will continue to be approved as there is no hint of a serious discussion in Congress of undermining the H-1B program itself. In fact, the H-1B program remains by far the best solution for the vast majority of professional workers and international students graduating from American universities to secure long-term employment in the United States. Employers must continue to abide by their regulatory responsibilities as usual, with the knowledge that government has begun to step up compliance efforts. These responsibilities include, inter alia, paying their H-1B employees the required wage, filing new LCAs as required, avoiding unpaid "benching," and maintaining public access file and LCA notification records.

Government Agencies Apply Higher Levels of Scrutiny Towards Certain Companies

US Citizenship and Immigration Services (USCIS)

The USCIS’s increased focus on certain H-1B employers, especially smaller companies and IT consulting companies, is not a new phenomenon by any means.

For instance, back in the 1990’s, what was then known as Immigration and Naturalization Service (INS) routinely issued Requests for Evidence (RFEs) and denials for filings by consulting companies, claiming that the petitioners were actually job shops offering merely "speculative" rather than credible employment offers to their sponsored beneficiaries. In Matter of Shanmukam, LIN 99 243 50365 (AAO May 23, 2000), the Administrative Appeals Office roundly dismissed the USCIS’s theory of "speculative employment," in holding that "there is no support for the explanation of this concept per se in either the statute or regulations." The AAO essentially recognized that the INS had no basis in denying cases filed by consulting companies on the ostensible basis that they were merely "job shops," as long as the petitioner would be the actual employer.

After a brief hiatus, the USCIS once again began to issue burdensome document requests of this type to consulting companies. Although the USCIS no longer seems to characterize the petitioner as offering "speculative employment," the underlying arguments and documentation requirements follow the same reasoning. Presently, the document requests appear under the guise of requests to verify the job duties to be ultimately performed by the beneficiary. USCIS is unduly skeptical of employers’ attestations as to the actual requirements of the positions they themselves offer, and is instead doggedly insistent on the production of corroborating third-party documentation such as contracts, work-orders and itineraries of placements. This trend has been more pronounced for filings under the jurisdiction of the California Service Center, although it has seeped its way to the Vermont Service Center as well. Thus, while the regulatory requirements for H-1B positions have remained largely static, the applicable burden of proof has risen in the past few years.

Bottom Line: Consulting companies are urged to avoid filings that might seem "speculative," and forego on any extensions or transfers unless concrete project details can be provided. In addition, certain legal precedents and arguments can be raised to counter the USCIS’s underlying "speculative employment" reasoning.

Department of State (DOS)

Over the last few years, the Department of State’s Consulates have also increased the standard of proof required for favorable visa adjudication in the H-1B context. In many cases, the Consular Officers essentially re-adjudicate visa petitions that have already been approved by USCIS, in direct contravention of the DOS’s Foreign Affairs Manual (FAM). This phenomenon has been especially pronounced at the Chennai Consulate, although it has manifested itself at the other U.S. consulates in India and around the world as well. Higher levels of scrutiny are also being applied towards smaller companies, and those competing in the computer consulting industry. Oftentimes the visa applicant is provided with a burdensome list of requested documents under Section 221(g) of the Immigration and Nationality Act.

Decades-old legal precedent holds that the Consular Officers (COs) have almost unfettered jurisdiction is making their factual determinations.[12] However COs can often be favorably swayed when presented with additional factual documentation that directly addresses their concerns. In addition, a mechanism is in place at the DOS for review or appeal of a CO’s legal conclusions (as opposed to factual conclusions).

Bottom Line: Many, if not most 221(g) document requests can be favorably resolved if the requested documentation is provided in sufficient detail (and where such documentation is unavailable, if its absence is satisfactorily explained).

A Look Ahead

As the new Obama administration overhauls the executive branch of the federal government, one of the many highlights is the recent appointment and confirmation of former Arizona Governor Janet Napolitano as Secretary of the Department of Homeland Security, and former New York Senator Hillary Clinton as Secretary of the Department of State. Both Napolitano and Clinton have been outspoken proponents of boosting skilled immigration, and have expressed their favor for increasing the H-1B cap and reducing green card backlogs. While only Congress can pass reform legislation, it is hoped that these appointments will lead to much-needed favorable regulatory and policy changes at DHS and DOS.

Bottom Line: Napolitano’s and Clinton’s appointments may lead to favorable policy changes in the adjudication and enforcement of the H-1B cases. However, the prior administration undoubtedly instilled a culture of increased enforcement and denial of benefits at USCIS and DOS, and any salutary changes one may expect in that regard from the recent changes will certainly take time to permeate through an immigration bureaucracy that seems to rival even Franz Kafka’s Castle. It is therefore hardly surprising that the first H-1B policy change to occur under the Obama administration has been the economic stimulus plan’s de facto ban on H-1B filings by TARP recipients. As numerous commentators have argued, such restrictionist policies are highly anti-competitive, inefficient and contrary to the financial best interests of the country.[13]

FOOTNOTES:

[1] See Mark Twain, Quotation, The New Dictionary of Cultural Literacy (3rd ed. 2002), available at http://dictionary.reference.com/browse/the+reports+of+my+death+are+greatly+exaggerated.

[2] See below for a discussion on the 2009 economic stimulus plan’s restrictions on H-1B filings for TARP recipients.

[3] See Dick Durbin, Durbin And Grassley Introduce First Bipartisan H-1B Visa Reform Bill to Protect American Workers, Apr. 2, 2007, at http://www.grassley.senate.gov/news/news-releases/grassley-and-durbin-introduce-first-bipartisan-h-1b-l-1-visa-reform-bill-protect .

[4] David M. Herszenhorn & Carl Hulse, Deal Reached in Congress on $789 Billion Stimulus Plan, N.Y. Times, Feb. 11, 2009, at  http://www.nytimes.com/2009/02/12/us/politics/12stimulus.html?_r=1&scp=1&sq=stimulus%20bill&st=cse

[5] Wall Street Journal, Participants in Government Investment Plan, available at http://online.wsj.com/public/resources/documents/st_BANKMONEY_20081027.html.

[6] 20 C.F.R. §655.736 294 (2006). An employer is H-1B dependent if the employer (a) has 25 or fewer full-time equivalent employees who are employed in the U.S., and employs more than seven H-1B nonimmigrants, (ii) has at least 26 but not more than 50 full-time equivalent employees who are employed in the U.S., and employs more than 12 H-1B nonimmigrant; or (iii) has at least 51 full-time equivalent employees who are employed in the U.S., and employs H-1B nonimmigrants in a number that is equal to at least 15 percent of the number of such full-time equivalent employees. Id.

[7] Lou Dobbs, Lou Dobbs Tonight, CNN, Nov. 10, 2008, available at http://transcripts.cnn.com/TRANSCRIPTS/0811/10/ldt.01.html.

[8] Angelo Paparelli, Angelo Paparelli's Blog, Oct. 30, 2008, available at http://blogs.ilw.com/angelopaparelli/2008/10/index.html.

[9] Angelo A. Paparelli & Ted J. Chiappari, Immigration Risks Imperil the New Government, N.Y.L.J., Oct. 27, 2008.

[10] Kevin Fogarty, H-1B Visa Reform Takes Shape to Address Fraud, Procedural Nightmares, eWeek.com, Nov. 7, 2008, at http://www.eweek.com/c/a/IT-Infrastructure/H1B-Visa-Reform-Takes-Shape-to-Address-Fraud-Procedural-Nightmares/.

[11] Moira Herbst, Visa Fraud Sparks Arrests Nationwide, Businessweek Online, February 13, 2009, at http://www.businessweek.com/bwdaily/dnflash/content/feb2009/db20090212_920784.htm.

[12] Garcia v. Baker, 765 F. Supp. 426 (N.D. Ill. 1990); United States ex rel. Ulrich v. Kellogg, 30 F.2d 984 (D.C. Cir. 1929), cert. denied, 279 U.S. 868 (1929); Li Hing of Hong Kong, Inc. v. Levin, 800 F.2d 970 (9th Cir. 1986).

[13] Thomas Friedman, The Open-Door Bailout, N.Y. Times, Feb. 10, 2009, available at http://www.nytimes.com/2009/02/11/opinion/11friedman.html.

Last updated: March 05, 2009.

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