SUMMARY OF DEPARTMENT OF LABOR’S INTERIM FINAL H-1(B) REGULATIONS ISSUED DECEMBER 20, 2000

On December 20, 2000, the Department of Labor published interim final regulations implementing changes in the H-1(b) program. These regulations which take effect on January 19, 2001 implement changes in the program brought about as a result of the American Competitors and Workforce Improvement Act in 1998 (ACWIA) as well as the American Competitiveness and the Twenty First Century Act of 2000 (AC21). The majority of the changes will affect those employers who are deemed to be “dependent” on H-1(b) workers. However numerous provisions impact all employers who use H-1(b) workers. The following is designed to be a summary of those regulations. This summary is not intended to be a substitute for specific legal counsel which can address your company’s specific circumstances.

I. REGULATIONS WHICH AFFECT ALL EMPLOYERS

A. Benefits. ACWIA requires that benefits be offered to H-1(b) nonimmigrants on the same basis, and in accordance with the same criteria, as they are offered to the employer’s US workers. The regulation defines this to mean that H-1(b)’s must be offered the same benefit package as US workers, cannot be subjected to stricter eligibility criteria, and cannot be treated as “temporary employees” for benefits purposes by virtue of their nonimmigrant status.

B. Benching. ACWIA requires that if an H-1(b) is in a non-productive status due to a “decision by the employer,” including a lack of work assignments or a shutdown, the employee must be paid the full pro-rata salary due under the terms of the LCA. Voluntary leaves do not require payment. This requirement has existed since ACWIA was passed in 1998.

C. Attorney fees. The effect of this regulation is to make it a violation of the required wage provisions if the H-1(b) employee pays “attorney fees and other costs connected to the performance of H-1(b) program functions which are required to be performed by the employer (e.g. preparation and filing of LCA and H-1(b) petition)” such that, when deducted from the employee’s wage, the wage would be below the higher of the actual or the prevailing wage. If such payments would not reduce the employee’s wage beneath the required wage, such payments are permissible.

D. Posting at actual worksites. The regulation reinstates the requirement, struck down by the NAM lawsuit, that notices must be posted at worksites within the area of intended employment on or before the date that the H-1(b) employee reports to that site. It also explicitly requires postings not only in the employer’s own facility, but at third party worksites. Electronic notice is allowed, either by a one-time direct notice (such as e-mail) to employees in the occupational classification at the place of employment or by making the notice available for 10 days by electronic means such as a company intranet or bulletin board.

E. Actual Wage Documentation. The requirement that employers must have an objective wage system “sufficiently detailed to enable a third party to apply the system to arrive at the actual wage rate computed by the employer for any H-1(b) nonimmigrant” has been deleted. The DOL states that the system does not have to be “objective” but must only use “legitimate business factors.” DOL is “persuaded that some subjective factors, such as an evaluation of performance levels,” may be legitimate. Also, the documentation must only be detailed enough that a third party can “understand how the employer applied its pay system to arrive at the actual wage for its H-1(b) nonimmigrant(s).” The description in the public access file should, at a minimum, contain the business-related factors that are used in setting wages and the manner in which they are implemented (e.g. the wage/salary range for the position and the pay differentials for various factors such as education and job experience). This is a significant improvement over the prior rule however it will continue to be difficult for employers without a wage system to comply.

F. The “no penalty” clause. ACWIA prohibits the requirement of payment of a penalty for the H-1(b) employee ceasing employment prior to an agreed date, except that the employer may receive liquidated damages in such a case. The regulation indicates that liquidated damages cannot be collected by deduction from the employee’s paycheck unless certain rather stringet requirements are met.

G. Corporate reorganizations. As long as the conditions specified by the DOL are met, no new LCA will need to be filed to continue employment of existing H-1(b) employees when there is a corporate reorganization or an acquisition. However, the new entity will be required to maintain a list of the H-1(b) employees transferred to it, and to maintain in the public access file a list of the affected LCA numbers and their dates of certification, a description of the new entity’s actual wage system, the EIN of the new entity, and a sworn statement from an authorized representative of the new entity expressly assuming the liabilities and obligations of the existing LCAs and containing certain specified language. According to the regulation, the new entity “shall not” employ any of the predecessor’s H- 1(b) employees unless either this statement is executed and placed in the public access file or new LCAs and petitions are filed. In some circumstances, it will remain prudent for the new entity to file new LCA’s.

H. H-1(b) portability. The regulation indicates that AC21's H-1(b) portability provision cannot be used until a petition is filed with INS that is supported by a certified LCA.

I. Short-term placement of H-1(b) workers. Generally, an employer must have a valid LCA covering an employee who commences work in any area of intended employment, and comply with its attestations (such as posting a notice of hiring an H-1(b) worker and complying with the prevailing wage in that location). Up until this point, DOL has had vague and contradictory rules for when an employee travels away from his usual place of employment, or works in more than one geographic area, while on an H-1(b). Several of the original DOL regulations were struck down by a lawsuit by the National Association of Manufacturers in 1995. Additionly, INS and DOL pronouncements on the issue of when amended petitions were required when an employee changes locations have often been in contradiction of one another leading to an uncertainty on the part of most employers.

Under the new regulations, a multi-tiered and complex inquiry is now to be used to determine what needs to be done by the employer when an H-1(b) nonimmigrant travels. The employer must first determine whether the place is a new place of employment, by looking at the nature of the duties and whether the visit is casual in nature. If the travel is to a new place of employment, “short-term placement” rules described in the regulations can be followed in some cases, provided the employment situation meets the limited criteria and meets its payment obligations (actual costs of the employee). This short-term placement would not require the use of an LCA for that worksite. However, if an employer already has in place an LCA for that worksite (for other employees, perhaps, or for multiple workers) and for that occupational classification, the employer may not relay on the short- term placement rules but must use the LCA, and must meet its obligations (including the wage listed on the LCA and the posting requirement). See the attached “H-1(b) Workers in a New Geographical Location/Short-term Placement Flowchart”.

J. New LCA form. A new, 3-page form is included in the regulation. The form can be filed via faxback system using an “800" telephone number, or can be submitted by mail to the Philadelphia DOL Regional Office post office box (no private carriers). Individual regions will no longer process LCAs. If the form is mailed in, it will be scanned into the faxback system. There will be a transitional period, from January 19, 2001 until February 5, 2001, during which the faxback system will not be useable, and LCAs can be submitted only by mailing the new form to the Philadelphia address. However, after January 19, 2001, only the new three-page form published with the regulation will be accepted. The new form removes the actual text of the attestation elements to a new “cover page” which does not need to be submitted to DOL but must be included in the public access file, be part of any posting of the form (electronic or hard copy) and be provided to the H-1(b) employee. The form will be available for download (along with a form filler program) from the DOL’s website. Click here for draft form.

K. Complaints by non-aggrieved parties. For the first time, ACWIA authorized the DOL to conduct investigations, under certain specified circumstances, based on information received from persons who would not be considered aggrieved parties. The regulation sets forth a process for receiving such information, which the DOL will then review to determine whether the source is likely to possess relevant knowledge, whether the information provided is specific and credible and provides reasonable cause to believe that the employer has committed a violation, and whether the alleged violation is willful, involved a pattern or practice, or involves substantial violations affecting multiple employees. The DOL contends that it remains authorized to conduct investigations without a complaint and every indication hs been given that “dependent” employers will be targets of investigations.

L. Termination. The new regulations suggest that the INS needs to be notified before the DOL will consider the termination of an employee to be effective.

II. DETERMINING DEPENDENCY

All employers wishing to employ H-1(b) workers must determine whether they are dependent. Depending upon the circumstances, this calculation may be rather simple or may be tremendously complex utilizing definitions from other areas of Federal law including IRS regulations. Please use the “Are You an H-1(b) Dependent Employee” chart to help you make this determination.

A. Snapshot Test. An H-1(b) dependent employer may generally be defined as an employer who: (a) has 25 or fewer “full-time” employees and 8 or more H-1(b) employees; (b) has 26 to 50 “full-time” employees and 12 or more H-1(b) employees or (c) has 51 or more “full-time” employees and at least 15% of its workforce consists of H-1(b) employees.

B. Full Calculation of Status. If the snapshot test reveals that a company may be dependent, it must conduct a full calculation of its status. A company must conduct the calculation of its dependency status each time an LCA (existing or new) is used to support an H-1(b) petition (for new employment or an extension of employment). The calculation should be made by comparing two numbers: (1) an actual head count of H-1(b) employees, without regard to full or part-time status, and (2) a computation of the employer’s “full-time equivalent” employees. If the ratio is 15% or more (or if the numbers meet the cutoff for smaller firms as described above), the employer is then considered dependent.

C. Miscellaneous Issues in Calculating Dependency. In some circumstances, the single employer test must be utilized. The Interim Final Rule (IFR) provides that entities considered a “single employer” under the Internal Revenue Code Sections 414(b), (c), (m), or (o) must combine their employees for determining their dependency calculation. In general, those sections include: 1) “controlled groups of corporations,” such as parent-subsidiary controlled group, a brother-sister-controlled group, or a combined group; 2) “trades or businesses under common control” which can include sole proprietorships, partnerships, estates, trusts, and corporations; or (3 “affiliated service groups,” There are also tests to determine how to calculate full-time equivalent employees where part-time employers are a part of the work force.

III. REGULATIONS WHICH IMPACT DEPENDENT EMPLOYERS

A. Recruitment Attestation. Dependent employers will now be required to attest that they have recruited for US workers, and to preserve all records reflecting efforts to recruit US workers. This paperwork must include the places and dates of the recruitment, advertisements, postings, application forms, job offers, rating forms used by the employer’s representatives at interview, and other personnel documentation related to the hiring process. The employer has the burden of proving, in the enforcement action, that its recruitment met “industry-wide standards,” such as trade organization surveys, studies by consultative groups or reports/statements from trade organizations. Staffing firms must meet the standards of the industry in which they are placing employees, i.e. technology- staffing firms must meet the standards of the information technology industry generally. An employer cannot satisfy the good faith recruitment obligation if it does not give good faith consideration to US applicants. The regulations require that at a minimum the employer engage in two types of recruitment: active and passive.

1. Active recruitment includes but may not be limited to the following: direct communication to incumbent workers in the employer’s operation and to workers previously employed in the employer’s operation and elsewhere in the industry; providing training to incumbent workers in the employer’s organization; contact and outreach through collective bargaining organizations, trade associations and professional associations; participation in job fairs (including at minority-serving institutions, community/junior colleges, and vocational/technical colleges); use of placement services of colleges, universities, community/junior colleges, and business/trade schools/ use of public and/or private employment agencies, referral agencies, or recruitment agencies (“headhunters”).

2. Passive recruitment includes but may not be limited to the following: Advertising in general distribution publications, trade or professional journals, or special interest publications (e.g. student-oriented; targeted to underrepresented groups, including minorities, persons with disabilities, and residents of rural areas); America’s Job Bank or other Internet sites advertising job vacancies; notices at the employer’s worksite(s) and/or on the employer’s Internet “home page”.

B. Displacement Attestation. In general, the statute provides that employees of the employer (primary displacement) and, in contractor situations, “employees of the other employer” (“secondary displacement”) are protected from displacement by H-1(b) nonimmigrants. Dependent employers must now attest that they have not displaced US workers in the same occupational classification for a period of 90 days prior to filing the H-1(b) petition, and will not displace US workers in that occupational classification for 90 days after the filing of the petition. The dependent employer must also attest that is has asked and determined that the secondary employer has not displaced US workers for the same period. The new interim final rule uses a “common law” test to determine whether an individual is an “employee of either the principal employer or the other employer.

1. Primary displacement. The regulations prohibit an employer from displacing any essentially equivalent U.S. workers from its workforce for a period of 90 days before and 90 days after the filing of an H-1(b) petition.

2. Secondary displacement. This provision will have a significant impact on the staffing industry. The secondary displacement prohibition controls when an H-1(b) employer places its H-1(b) employee at a worksite operated or owned by another employer where there are “indicia of employment” between the H-1(b) professional and the other employer: the typical staffing situation.

The primary employer is required to exercise “due diligence” in inquiring of the secondary employer whether the secondary employer has displaced US workers during the relevant period (90 days before and after placement of the H-1(b) nonimmigrant at the worksite). Failure to exercise due diligence can subject the primary employer (i.e. the staffing firm) to monetary penalties and debarment from using immigration programs for up to three years. The secondary employer has no liability in such situations. The employer may be required, in the exercise of due diligence, to make further inquiries when it has other information which indicates that US workers might have been or will be displaced (examples include where the employer is taking over a function of the other employer that was formerly conducted by it own employees, or following news reports of layoffs by the other employer) if the information is available before the placement of the H-1(b) nonimmigrant. The language appears to impose a strict liability standard on employers therefore extreme scrutiny must be utilized in all staffing situations and some assignments may need to be rejected.

C. Exemption from attestation obligations. If an employer is H-1(b) dependent, it is obligated to undertake certain attestation requirements unless the LCA is used only for employment of an ‘exempt’ H-1(b) worker. To be exempt, the worker must (i) be paid at an annual rate of $60,000 per year; or (ii) have attained a masters degree or higher (or its equivalent) in a specialty related to the intended employment. The equivalency must be based upon education only and may not be arrived at by combining education and experience.

IV. PENALTIES

There are four (4) basic types of penalties and/or remedies which can be imposed on an employer who is found to have violated the LCA provisions.

A. Back Wages. The DOL has the authority to assess and oversee the payment of back wages or fringe benefits to any H-1(b) nonimmigrant who has not been paid or provided fringe benefits as required. The back wages or fringe benefits shall be equal to the difference between the amount that should have been paid and the amount that actually was paid to (or with respect to) such nonimmigrant(s). This is the most common remedy imposed by the DOL.

B. Civil Money Penalties. There are three (3) tiers of civil money penalties.
Tier 1: An amount not to exceed $1,000 per violation for: a) A violation pertaining to strike/lockout or displacement of U.S. workers; b) A substantial violation pertaining to notification; c) Labor condition application specificity, or d) recruitment of U.S. workers; e) A misrepresentation of material fact on the labor condition application; f) An early termination penalty paid by the employee; g) Payment by the employee of the additional $500/$1000 filing fee; or h) Violation of the requirements of the regulations regarding public access where the violation impedes the ability of the administrator to determine whether a violation has occurred or the ability of members of the public to have information needed to file a complaint or information regarding alleged violation.

Tier 2: An amount not to exceed $5,000 per violation for: a) A willful failure pertaining to wages/working conditions, b) strike/lockout, notification, c) labor condition application specificity, d) displacement (including placement of an H-1(b) nonimmigrant at a worksite where the other/secondary employer displaces a U.S. worker), or e) recruitment; f) A willful misrepresentation of a material fact on the labor condition application; or g) Discrimination against an employee.

Tier 3: An amount not to exceed $35,000 per violation where an employer displaced a U.S. worker employed by the employer in the period beginning 90 days before and ending 90 days after the filing of an H-1(b) petition in conjunction with any of the following violations; and a) A willful violation of any of the provisions described pertaining to wages/working condition, strike/lockout, notification, labor condition application specificity, displacement, or recruitment; or b) a willful misrepresentation of a material fact on the labor condition application.

C. Debarment. The administrator shall notify the Attorney General pursuant to § 655.855 that the employer shall be disqualified from approval of any petitions filed by, or on behalf of, the employer pursuant to §204 or §214(c) of the INA for the following periods:

At least one year for violation(s) of any of the Tier 1 a-e violations of this section;
At least two years for violation(s) of any of the Tier 2 violations; or at least three years, for any Tier 3 violation(s).

The provisions relating to debarment must be considered more seriously since the standard for a debarable violation has been lowered and the imposition of the debarment penalty appears to be mandatory rather than discretionary.

D. Miscellaneous. The DOL may also impose such other administrative remedies as the they determine to be appropriate, including but not limited to reinstatement of workers who were discriminated against, reinstatement of displaced U.S. workers, back wages to workers who have been displaced or whose employment has been terminated in violation of these provisions, or other appropriate legal or equitable remedies.

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