by Stephanie Overby

H-1B Reform Bill Could Complicate Offshore Outsourcing

Aug 26, 2009

A provision of the H-1B and L-1 Visa Reform Act of 2009, intended to prevent companies from replacing American workers with H-1B visa holders, will make it more difficult for outsourcing vendors to place H-1B professionals at customer sites if the legislation is passed.

While the fate of the legislation that would alter the administration and regulation of the H-1B visa program remains up in the air, one thing is clear: The bill contains an important provision, designed to prevent the displacement of American workers, that could put a serious wrinkle in the typical offshore outsourcing arrangement.

The H-1B and L-1 Visa Reform Act of 2009, currently in committee, limits the ability of employers who sponsor H-1B applicants to place them at another company without a waiver from the Labor Department.

According to the bill introduced by Senators Chuck Grassley (R-IA) and Dick Durbin (D-IL), if an employer wants to “place, outsource, lease, or otherwise contract for the services or placement of H-1B non immigrants with another employer,” it must establish that:

  • the company where the H-1B professional would be placed has not laid off any U.S. workers in the last six months and will not displace any U.S. employees in the following six months;
  • the visa holder will be controlled and supervised by the sponsoring company and not the client company where he or she is placed; and
  • the arrangement is not essentially a “labor for hire” agreement between the H-1B sponsor’s actual employer and its client.

It’s no surprise that IT service providers and the trade groups that represent them in Washington are working hard to have this particular provision eliminated from the legislation, as it would hamper their ability to meet their clients’ needs. Outsourcing customers have come to demand that their offshore IT service providers will place some percentage of their staff at the customer’s site, either to help during the early transition period or to remain for a longer time to manage workflow between the U.S. customer and the offshore delivery center. One way offshore providers meet that demand is by placing their own employees in the U.S. on H-1B visas.

Furthermore, the bill’s effort to prevent American workers from being replaced by H-1B visa holders complicates American companies’ outsourcing decisions, says Elizabeth Espin Stern, partner and head of the global migration practice at law firm Baker & McKenzie. Since many outsourcing deals are accompanied by layoffs at home—whether or not downsizing was part of the original outsourcing plan—outsourcing customers could be wary of providing proof to the Labor Department that they have not and will not lay off U.S. workers.

The provision is similar to limits put on L-1 visas several years ago. In 2005, lawmakers passed changes to the L-1 visa program prohibiting the transfer of specialized knowledge workers with L-1s from being primarily stationed at another company if the visa holder would be supervised by that other company or if it was part of an outsourced labor arrangement. The changes were made to ensure that that the L-1 visa program was not improperly used to facilitate the placement of workers at a customer site. (L-1 visas allow foreign-born workers with unique, specialized knowledge of their own organization to work in their company’s U.S. locations.)

The provision would apply in non-outsourcing contexts as well, which has other technology vendors on alert. “If the tech provider is the designer of a new system for the client and is simply sending some of its managers to the client site to assess the scope of the need, the provision could be seen as triggering a waiver requirement, even though that is really not a placement or sourcing situation,” Stern says.

What is not laid out in the proposed legislation is what the Labor Department waiver process would look like. If applying for the waiver proves arduous or outsourcing clients are unwilling to make testaments about their workforce plans and relationship with their outsourcing provider, the outsourcer would indeed have to employ American workers or green card holders in positions at their client sites. However, “if the process is fairly prompt, the impact would not be significant if the sourcing arrangement is augmenting capacity rather than replacing U.S. workers,” says Stern.

Many rank-and-file IT professionals laud the legislation. “The Durbin bill will put a stop to the outsourcing of American jobs and the discrimination against American IT professionals,” says Donna Conroy, a former IT professional and director of Bright Future Jobs, a grassroots lobbying group for American IT workers. “This bill was written for us.”

Each provision is important to Conroy and her group’s constituents—an end to “H-1B only” job ads and caps on the total percentage of H-1B professionals on staff in a company. She adds, “But the stealth provision—preventing body shops from farming out their visa workers—will, in effect, end the despicable practice of forcing us to train our foreign replacements.”