Pending changes in U.S. immigration law could change the business models for offshore outsourcing. Immigration reform is not only a weighty political issue. It is something that is likely to influence business strategies that could result in diminishing the adverse impact on global business service models.
Pending draft laws address several agendas for reform: Restructuring in order to promote more skills-based immigration (such as for “specialized knowledge” workers and “STEM” workers in science, technology, engineering and mathematics) and less focus on family reunification.
Amnesty (or some form of “earned” right of residency) for over 12 million illegal aliens, or at least for their U.S.-resident children under a failed DREAM Act.
Elimination of false information on identity and employment eligibility, providing information (through the “E-Verify” program) to employers to facilitate their role in enforcement, and penalizing employers who hire illegal aliens.
Avoidance of Future Abuses: Protection of the employment opportunities of U.S. citizens and lawful permanent aliens, such as cutting back on non-immigrant work visas for workers with specialized skills like the H1-B and the L-1 visa.
Pending Reform for Specialized Knowledge Workers: The protection of local workers lies at the heart of the H-1B and L-1 Visa Reform Act of 2013, S. 600, recently (re-) introduced by Sen. Chuck Grassley (R, Iowa) (113th Cong., 1s Sess.). The bill would impose severe restrictions on any U.S. or foreign business that wants to hire foreign workers for subcontracting to U.S. enterprise clients, with corresponding draconian remedies for violations. In particular, it targets “body shops” or employers who outsource their technical workers on H-1B visas to those who can pay, unrelated to skills or job opportunities.
Types of Visas: The H1-B visa and L-1 visa each require that the foreign worker have specialized knowledge (or, for an L-1, managerial experience). An F visa is a student visa that can lead to a short-term job as practical training after completion of studies.
Practical Training for Former Students on L-1 Visas: Sen. Grassley’s proposal would prevent students on F-1 visas from converting to L-1 visas if, for more than a year, they are to be “stationed primarily at the worksite of an employer other than the petitioning employer or its affiliate, subsidiary, or parent, including pursuant to an outsourcing, leasing, or other contracting agreement.” Id., Sec. 201(a). A waiver could be obtained if there is no intent and no result of displacing U.S. workers during the first 180 days of employment with the US employer, there is no control by an unrelated workforce employer and the foreign worker is providing “specialized knowledge specific to the petitioning US employer.” (Sec. 202).
New Offices Employing an L-1: The proposed law would limit L-1 visas for foreign workers coming to open a new U.S. office (whether as subsidiary, branch or affiliate) of a foreign company. Such L-1’s could only stay for up to 12 months, and would be disqualified if they have held two or more L-1’s in the two years before the application.
The employer operating the new office would need to demonstrate it has an adequate business plan, sufficient physical premises to carry out the proposed business activities, and the financial ability to commence doing business immediately upon the approval of the petition. For any extension of the initial period of validity, the “importing employer” would need to prove, for the entire period beginning when the L-1 foreigner was approved, the employer has been doing business at the new office through regular, systematic, and continuous provision of goods and services.
Minimum Wages and Comparable Wages: The U.S. employer would need to pay wages that are not discounted from the locally determined prevailing wage level for the occupational classification in the area of employment; or the median average wage for all workers in the occupational classification in the area of employment; or a median wage for relevant skill levels. The foreign workers would enjoy that same ”working conditions” as similarly employed local US workers, including, the opportunity to participate in health, life, disability, and other insurance plans; the opportunity to participate in retirement and savings plans and cash bonuses and noncash compensation, such as stock options (whether or not based on performance).
Audits:The Department of Homeland Security would conduct audits annually relating to L-1 visas. Random audits would be conducted for at least 1% of all L-1 employers. Mandatory audits would be conducted for all employers with more than 100 employees who work in the United States if more than 15 percent of such employees are L-1 non-immigrants. General findings of the audits would be published.
Penalties: If an employer were to violate this draft law, several drastic remedies would apply. An administrative penalty of $2,000 per violation could be imposed, which could increase to $10,000 per violation for a willful failure or a willful misrepresentation of material fact in an L-1 petition.
The L-1 employer would be barred from hiring any further L-1 intercompany transfers for a period of a year (or two years for willful violations). The L-1 employer would have to pay lost wages to the foreign employee who was hired in violation of the revised visa application procedures.
Whistleblower Protections: Foreign workers would enjoy the same “whistleblower” protections now granted to U.S. workers if current or former foreign workers complain to U.S. law enforcement authorities about violations of the proposed statute.
Solutions for Nearshore (and Offshore) Service Providers: This legislation targets the worst abuses by foreign “body shops” that choose to hire foreign workers for temporary assignments that can last years. For mature foreign outsourcing companies, as well as foreign “shared services” subsidiaries of U.S. multinationals, there are several possible solutions:
Develop a cadre of local U.S. workers for outplacement to enterprise customers; or improve the quality of telecommunications so that the foreign workers can be virtually present but not physically present in the U.S.
Restructure the procedures for delivering services, so that the assessment, proposal, design and “imagining” work can be done by U.S. workers with more back office work being done in the foreign location.
For new foreign outsourcing companies, other solutions may be available: Identify and enter into strategic alliances with (or make acquisitions of) small U.S. subcontractors to perform local U.S. work for U.S. customers but integrate such work with offshore delivery centers.
Use L-1 visas only for internal operations for a new office, and hire U.S. locals rather than expatriates for customer-facing account relationships. Develop technologies that enable more integration of distant workers who can provide each other with complementary skills (“generic” expertise such as finance, statistics, business analytics, data analysis, business modeling) with subject matter experts in vertical industries. Develop smart tools that promote such complementary “knowledge work.”
For all foreign outsourcing companies, the key is to fit into U.S. employment practices: comparative equality in wages, benefits, health and other insurance and incentive compensation.
All foreign companies should likewise become familiar with the impact of ObamaCare (the “Patient Protection and Affordable Healthcare Act” of 2010). This law will require companies with more than 50 full-time employees to provide healthcare insurance to all U.S. workers.
William B. Bierce is an award-winning lawyer in international business and technology with the law firm of Bierce & Kenerson, P.C. in New York City. He services businesses across the full lifecycle, technology providers and users, investors and governments. He is fluent in French and reads technical Spanish.www.biercekenerson.com