Last month we published a special newsletter issue covering the H-1B bill after the White House and Republican leaders reached a compromise and the House of Representatives passed H.R. 3736, which incorporated the compromise language. The conventional wisdom had the bill quickly passing in the Senate and being signed by the President. After all, the Senate had easily passed a much more controversial bill earlier in the session. But easy passage was not to come. Technical corrections were needed in H.R. 3736 and an extremely busy legislative agenda kept the bill from coming up again in the House. An attempt to vote on the bill in the Senate before the House referred the bill failed when Senator Tom Harkin (D-Iowa), blocked the measure. The bill was pronounced dead by many pundits until Senator Spencer Abraham (R-Michigan), the chief backer of the bill, managed to get the language inserted into the massive year end budget bill. Because the budget bill was necessary to keep the entire government operating it had to pass and everything included in the bill would pass as well with little argument.

As we were covering the H-1B legislation for the better part of this year, we needed to turn to numerous people to find out what was happening on the bill. On of the most reliable and informed people with whom we regularly conferred was Sam Udani, a founding partner in Adnet, an advertising placement agency that services immigration lawyers around the country. Sam happens to be one of the nation's top experts on the labor certification program as well and regularly writes and lectures on the subject. This month, we are including an article written by Sam summing up the new bill.

SELECTED HIGHLIGHTS FROM THE NEW H1B BILL

by Sam Udani

Outline of article:
Introduction
The changed H1B landscape
Changes in fees
Changes in recruitment for H1B dependents
Changes in enforcement
Changes in employment contracts
Changes in business structure
A few notes on Effective Dates and Sunsets
Effective Dates
Sunsets
The price paid for HR 3736
Fees
Audits
H1B dependents
Conclusion

* INTRODUCTION *

================

On October 21, 1998, the President signed passed HR 4328, the Omnibus Budget bill that includes the H1B legislation originally debated under the number H.R. 3736. This bill significantly raises the H1B cap from the current 65,000 to 115,000 in FY'99, 115,000 in FY'00, 107,500 in FY'01, and back to 65,000 thereafter. Attorneys in H1B practice should examine the effects of the bill on their clients, particularly if their clients are H1B dependents, a new notion introduced by this bill.

This article is not an exhaustive or scholarly analysis of HR 3736. It is a selective summary of the bill's key provisions that affect H1B practice. It highlights some issues that attorneys representing H1B dependents should take into consideration.

Since this bill's harshest clauses are aimed at H1B dependents, and since this is a new concept, attorneys should pay particular attention to the definition of this new concept set forth in Sec. 103(b)(1) of HR 3736.

An H1B dependent employer is one who has: (i) 25 or fewer full-time equivalent employees and 8 or more H1B aliens, or (ii) has 26 to 50 full-time equivalent employees and 13 or more H1B aliens, or (iii) 51 or more full-time equivalent employees and 15% or more of them are H1B aliens. Full-time equivalent employees are those who are employed in the US. In computing *both* the number of full-time equivalent employees *and* the number of H1B aliens, H1B aliens with either Master's degrees (or higher) or salaries of $60,000 (or higher), are exempted, and therefore should NOT be counted. However, *until* six months after this bill is signed into law or *until* final regulations on this matter are issued (whichever is later), such aliens are NOT exempted, and therefore *should* be counted. (In determining who is a single employer, the Internal Revenue Code sections referred to later in the article will apply.) This complex definition is not easily expressed as a ratio, and a calculation specific to each client is the best way of determining whether a specific employer is or is not H1B dependent.

* THE CHANGED H1B LANDSCAPE *

==============================

CHANGES IN FEES

Sec. 104(a) of HR 3736 imposes a fee of $500 for many H1B petitions (this fee is in addition to the applicable processing fee). The fee must be paid in two different situations. First, when an alien initially seeks to be granted H1B status. Second, when an alien seeks to extend the H1B status for the first time.

The fee is not payable in a variety of circumstances, as follows:

(1) When the employer is (or is related to, or affiliated to) an institution of higher education for the purposes of INA 212(a)(5)(a).

(2) When the employer is a non-profit research organization or governmental research organization for the purposes of INA 212(a)(5)(a).

(3) When the petition is for concurrent employment.

(4) When the petition is for sequential employment, except when it seeks an extension of stay for the first time.

(5) When the petition is an amended petition, except when it seeks an extension of stay for the first time.

(6) When the petition seeks re-extension of H1B status, beyond the period allowed by the first extension (presuming that such re-extension period is available).

(It is interesting to note an odd exception here. Petitions seeking new concurrent employment will not need to pay a fee *even if* such a concurrent employment application seeks to extend, for the first time, the alien's H1B status.)

The fee will be imposed on petitions filed on or after December 1, 1998. This may or may not necessitate an eventual change in the I-129 form. It will, however, immediately necessitate a change in INS feeing-in and/or adjudicating procedures. It is therefore likely that there will a period of confusion and adjustment in the coming months. H1B adjudications might be halted for a couple of weeks until the INS settles on a procedure that reflects the statutory requirements of Sec. 104(a) of HR 3736. Merely filing petitions prior to the President's signature will not help, since the fee will be imposed retroactively on all petitions filed on or after October 1, 1998.

CHANGES IN RECRUITMENT FOR H1B DEPENDENTS

Sec. 102(a)(1) of HR 3736 amends INA 212(n)(1) by adding, inter alia, new INA 212(n)(1)(G)(i)(I), that requires the employer, prior to filing an application to have taken "good faith steps to recruit" US workers "in the United States using procedures that meet industry-wide standards and offering compensation that is at least as great as that required to be offered" to alien workers.

This new sub-section will undoubtedly result in confusion over interpretation of the statutory language. Without pretending to offer an exhaustive analysis, here are some of the issues that draw attention.

(1) "good faith" - This will be difficult to define, even though all the evidence submitted with the petition is under penalties of perjury and so ought to be presumed to be in good faith. If defined improperly, this will be problematic for employers.

(2) "procedures that meet industry-wide standards" - This will create a good deal of trouble, even though word-of-mouth is the most common form of recruitment in almost all industries (e.g. see 45 FR 83929). Various USDOL-sponsored studies have identified word-of-mouth to be the most frequently used form of recruitment by employers (see the author's earlier articles). Unfortunately, USDOL may interpret "industry-wide" narrowly, and may use the practices of larger employers as the standard for all employers. In other words, the USDOL may decide that a large print advertising campaign is necessary, even though most small companies in many industries do not advertise in newspapers or magazines.

Furthermore, since different industries have different recruitment standards, making regulations for this clause will likely be extremely difficult (e.g. the automobile industry which is dominated by three huge companies has a different standard as compared to the retail industry which is dominated by mom-and-pop businesses). Fortunately, and thanks to its own technological advances (e.g. America's Job Bank and America's Talent Bank), USDOL now understands that the Internet provides many useful and common forms of recruitment.

(3) "offering compensation" - It is important to note here that it is the "procedures" that must offer "compensation". In plainer words, the advertisements need not contain a salary unless such is the industry-wide standard.

Sec. 102(a)(1) of HR 3736 also amends INA 212(n)(1) by adding, inter alia, new INA 212(n)(1)(G)(ii), which waives recruitment attestations from H1B dependents in cases of aliens who are described in subparas (A), (B) or (C) of INA 203(b)(1). In other words, for H1B purposes, you don't need to recruit if the alien would otherwise qualify for EB1. This creates a processing difficulty for the INS. INS employees familiar with I-129 processing may or may not be familiar with I-140 processing.

Therefore, the INS may need to conduct some amount of training, which could lead to a slowing down of H1B adjudications.

CHANGES IN ENFORCEMENT

Enforcement of LCAs remains, in the main, complaint-based. However, past willful violators are subject to random investigations. Further, Sec. 103(e) of HR 3736 anoints the USDOL with the power to conduct an investigation on *any* employer (in a designated context). In practice, the USDOL is likely to use the last of the above enforcement routes as its principal investigation trigger.

What this will likely mean is that allegations of H1B abuses by a local newspaper will now lead to prompt action by the USDOL. It will also mean that USDOL will now likely initiate investigations on the basis of complaints from labor unions, occupational associations, etc.

Overall, enforcement activity on LCAs by the USDOL will likely increase significantly. The bill has also significantly increased the penalties for violations. The monetary penalties could be as much as $35,000 per violation.

Further, violators could be debarred from many immigration programs, e.g. employers found to be in violation may not be able to obtain further Hs, Ls, or petition for permanent residency for their employees. Such debarrment could be for as much as 3 years. Violators may also have to make the recruitment and lay-off attestations for future H1B petitions.

Further, violators may be subject to random LCA investigations for a period of up to 5 years.

In view of the increased likelihood of enforcement, and the increased penalties for violations, attorneys should assist their clients to make such changes as may be necessary to comply with the new requirements imposed by this bill.

CHANGES IN EMPLOYMENT CONTRACTS

Sec. 103(a)(vi) of HR 3736 prohibits employment contracts that specify penalties for an employee who ceases employment prior to an agreed date.

Employment contracts with provisions within the scope of this section must now be revised. Interestingly, however, this section has the unintended consequence of forcing some US workers into a disadvantaged position as compared to alien workers. (Here's how. In some states, it is permissible, in some situations, to impose penalties on employees who have contracted to work for a certain time, and who leave prior to the agreed date. But Sec. 103(a)(vi) of HR 3736 is explicitly independent of State law. Hence, it disadvantages US workers, by giving alien workers an option to leave an employer, which some US workers may not have.)

CHANGES IN BUSINESS STRUCTURE

Sec. 102(b) of HR 3736 went into effect immediately upon the President's signature. This is a key section, because it defines the new concept of "H-1B Dependent Employer". Since many of the harsh provisions of HR 3736 (particularly the recruitment attestation and the layoff attestation) fall on such employers, attorneys may want to prevent their clients from qualifying as H1B dependents. Some employers may be attracted to the idea of "splitting up" a company into several companies of a smaller size so that the definition of H1B dependent is not triggered (in general, "job-shops" with eight or more employees). However, this is an issue which attorneys may want to consider with care.

Sec. 102(b) of HR 3736 creates, inter alia, new INA 212(n)(3)(C)(ii) which states in full: "any group treated as a single employer under subsection (b), (c), (m), or (o) of section 414 of the Internal Revenue Code of 1986 shall be treated as a single employer."

The referenced IRC sections deal mainly with employee-benefit issues.

However, in the immigration context, they are intended to be used only for definitional purposes. IRC section 414(b) posits the phrase "controlled group of corporations", which in turn is defined at IRC section 1563(a). IRC section 414(c) posits the phrase "partnerships, proprietorships, etc .... under common control". IRC section 414(m) posits the phrase "affiliated service group". IRC section 414(o) posits the phrase "avoidance ... through the use of separate organizations, employee leasing or other arrangements".

These IRC phrases have complex definitions. A fair amount of tax-law expertise may be necessary to "split-up" a company in a manner so as to avoid "common control" or "affiliation", etc. Immigration attorneys will probably work closely with tax-attorneys and accountants to study this issue. However, this "splitting-up" strategy may be costly, time-consuming and complex. This may make prohibitive the use of creative strategies in specific situations.

* A FEW NOTES ON EFFECTIVE DATES AND SUNSETS *

=============================================

EFFECTIVE DATES

The lay-off attestation and the recruitment attestation introduced by Sec. 102(a) of HR 3736 will go into effect only on or after final regulations are issued. Since this will necessitate a change in the LCA form, and in view of the USDOL's past history in implementing regulations, it may take many months before the regulations are finalized.

The new $500 fees will go into effect on December 1, 1998.

The new audit authority conferred on the USDOL by Sec. 103(e) of HR 3736 went into effect immediately upon the President's signature.

SUNSETS

Thanks in part to effective lobbying by the National Association of Manufacturers, the new $500 fees and the new lay-off and recruitment attestations will sunset when the increased H1B cap sunsets (i.e. on September 30, 2001). However, the new audit authority of the USDOL will not sunset.

* THE PRICE PAID FOR HR 3736 *

===========================

FEES

For the first time, fees will be imposed on the H1B program, creating an unfortunate precedent for all Employment-Based immigration.

Employment-Based immigration is founded on the value of immigrants to the US economy. By benefiting the US economy, such immigrants in fact create jobs for US workers. However, the new fees fuel a false perception that immigrants are a drain on the US economy.

AUDITS

For the first time, the USDOL will have meaningful power to conduct investigations which have not been triggered by a complaint. Some investigations, which could be on *any* employer, will be initiated without notice to the employer. From the employers' point of view, this was a big price to pay for the extra H1B numbers that HR 3736 made possible.

H1B DEPENDENTS

For the first time, a new category of disadvantaged employers has been created. This gives Congress room to implement new policies of questionable merit first on such disadvantaged employers as a pre-cursor to applying those policies on *all* employers. H1B dependents are merely middlemen (or brokers) implementing what Congress has just re-affirmed is national policy, i.e. the H1B program. Blaming middlemen for market abuses recalls the failings of socialist economic theory.

* CONCLUSION *

==============

HR 3736 substantially increases the number of H1B visas. This will be of benefit to many American employers, and the American economy generally.

However, a high price had to be paid to convince the Administration to support the bill. Attorneys will need to review the specific situations of their H1B clients, and should assist clients to comply with the new requirements. However, for H1B dependents such compliance could be difficult and costly.

*endnotes*

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The bill text and section numbers used here are from the Congressional Record - House for September 24th, 1998, pages H8579 through H8584.

This article is intended only for attorneys in H1B practice. Nothing in the article should be construed as legal advice. Attorneys are cautioned to make their own professional judgment on matters discussed herein.

The author wishes to acknowledge the kind comments by Gary Endelman and Ann Pinchak without the benefit of which this article would not have been possible.

Sam Udani of New York City consults with immigration attorneys throughout the country.

Entire article copyright by Sam Udani, 1998