Siskind Summary – Purdue v. Scalia: Challenging the DOL Wage Rule

Posted on: October 19th, 2020
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Greg Siskind is co-counsel on this case which is filed with lead co-counsel Jeff Joseph of Joseph and Hall in Denver, Chuck Kuck of Kuck Baxter in Atlanta and Jesse Bless with the American Immigration Lawyers Association.

On October 6th, the Department of Labor posted an interim final rule (the “IFR”) dramatically changing the way it calculates prevailing wages in H-1B, H-1B1, E-3, and PERM labor certification cases. The rule was made effective on October 8th and a 33-day comment period was provided but after the rule was effective. No comment period was provided in advance of the effective date.

The rule is unprecedented in its haste and violates a number of procedural requirements of the Administrative Procedure Act.

DOL’s stated reason: It was “strengthening wage protections, addressing abuses in these visa programs, and ensuring American workers are not undercut by cheaper foreign labor. These changes will strengthen our foreign worker programs and secure American workers’ opportunities for stable, good-paying jobs.”

DOL’s admission that the rule will have a major impact on the labor market is a good reason why it should have been submitted to the Office of Information and Regulatory Affairs (OIRA) as normally required.

The plaintiffs will have and continue to suffer irreparable harm due to the IFR. Plaintiffs and similarly situation employers will have to pay dramatically higher wages compared to similarly employed US workers. In some cases, wages increased by 50% overnight.

The Defendants have not set forth good cause to waive the requirement of notice and comment and publishing the rule as an IFR. And even if they had cause, the changes are based on faulty economic assumptions that fail to account for the damage to the Plaintiffs.

Had the rule been subject to notice and comment, the Defendants could have considered the Plaintiffs significant reliance interests and harms.

The IFR is procedurally defective, contrary to law, and arbitrary and capricious under the APA.

Jurisdiction and Venue

The court has jurisdiction over the case because it’s a federal question and the court can adjudicate under the Declaratory Judgement Act and the APA. It can set aside an agency action as contrary to law, an abuse of discretion, or arbitrary and capricious as well as an action that is ultra vires (outside the statute). DC is a proper venue because the Defendants are federal agencies.

The Parties

A discussion of each plaintiff follows. The lead plaintiff, Purdue University, is one of the country’s best-known institutions of higher education. Other universities include the University of Denver, University of Rochester, Bard College, Scripps College, Arizona State University, Indiana University, StudyMississippi (a consortium of Mississippi colleges), Northern Arizona University, and Chapman University. Health care organizations and employers include Dentists for America, Physicians for American Healthcare Access, United Methodist Homes and Services, and Marana Health Center, a federally qualified health center. The Information Technology Industry Council is a leading consortium of the nation’s most innovative companies. Hodges Bonded Warehouse is an Alabama logistics company. International Institute of New England is a 110-year-old refugee assistance organization.

Legal and Factual Framework

The complaint provides background on the various visa programs impacted.

The IFR did not follow notice and comment rulemaking. The rule that is being replaced by the IFR was created in 1991.

The APA requires an agency to publish a notice of proposed rulemaking, justify the rule by reference to legal authority, describe the “subjects and issues involved” in the rule and allow interested parties to submit comments. After comments are made, the agency may publish a final rule explaining the action and its rational connection between the facts found and the choices made.

These steps may only be skipped if an agency, for good cause, finds that it is impracticable, unnecessary, or contrary to the public interest and the agency incorporates this finding and reasons in the rules issued.

“Impracticable” is when an agency finds that timely execution of its functions would be impeded by such procedure such as when implementing a safety rule.

Notice and comment are “unnecessary” only when the rule is a routine determination, insignificant in nature and impact, and inconsequential to the industry and to the public.

Notice and comment are “contrary to the public interest” when the interest of the public is defeated by providing notice and comment. The issue is not whether dispensing with notice and comment would be contrary to the public interest, but whether providing notice and comment would be contrary to the public interest. The DC Circuit has made it clear that this exception is to be narrowly construed.

Under Executive Order 12866, any rule likely to have a $100M+ impact needs to be reviewed by the Office of Management and Budget’s OIRA. OIRA may waive review but historically has not done so with respect to DOL rulemaking. EO12866 says that a waiver should only be due to exigency, safety, or other compelling cause and a senior polity official must explain the nature of the emergency and why following normal procedures would result in harm. No explanation has been provided regarding OIRA’s waiver here.

DOL’s wholesale changes, after 30 years, dramatically inverts the employer’s obligations to commit to paying the greater of actual or prevailing wages to pay a new required wage manufactured by DOL. The IFR doesn’t protect US workers and directly interferes with an employer’s ability to obtain the H-1B workers it needs.

DOL justifies its good cause for two reasons. First, it blames, without evidence, the “shock to the labor market” caused by the coronavirus and delaying would hurt DOL’s effort to protect US workers. Second, DOL contends, without citing evidence, that advance notice would give employers an incentive to use evasive measures to avoid the adjusted wage requirement.

The IFR’s Dramatic and Immediate Changes Remain Based on Reasoning that is Insufficient, Incorrect, Irrational, and in Contravention of Other Federal Laws.

The IFR relies on incorrect information, makes incorrect calculations, and rests on irrational assumptions.

Previously, Level 1 wages were set at the 17th percentile and Level 4 was set at the 67th percentile. Level 2 and 3 are required to be set equidistant between these two. The new rule uses the arithmetic mean of the fifth decile (45%) for Level 1 and the arithmetic mean of the 10th decile (95th percentile) for Level 4. But it didn’t account that there are very high-paying outlier wages at level 4 that skew the average of the top decile higher causing the bell curve to shift to the right and drag Level 2 and 3 wages higher.

The complaint then provides further analysis explaining why DOL’s new methodology results in wildly higher calculations than the previous system. In many cases, DOL can’t even calculate a wage because there is not enough data available under its formula and it defaults to a national $100 per hour wage for an occupation, or $208,000 per year. A single wage applies to all workers regardless of geographic area, level of experience or area of specialization within the occupation. In some cases, this represents an increase of 50% from the previous Level 1 wage. While alternate wage surveys can be used, the employer faces significant risk because they don’t get a “safe harbor” protection in the case of an audit.

Regarding health care, the new rule interferes with the system Congress set up for J-1s. As residents are forced to switch from H-1B to J-1 status, that will increase demand for J-1 waivers which are limited by state and will result in fewer doctors being available for rural America. Furthermore, after getting a J-1 waiver, doctors have to switch to H-1Bs and many employers won’t be able to afford to pay each new doctor $208,000.

18,000 jobs are now covered by the $208,000 default wage.

The rule may violate wage and hour laws by forcing employers to violate equal pay laws.

Other DOL rules may even come in to play. Actual wage rules require an employer to pay an H-1B worker as much as similarly employed US workers. They would thus have to raise US worker salaries to the same amount in order to comply.

The new rule will force employers to choose between violating the IFR or the federal Stark Law which bars employers from paying physicians in excess of the “fair market value” for their services. Violations can be punished by fines of up to $100,000 per violation.

The IFR immediately and irreparably harms plaintiffs and the public.

The complaint discusses the specific impact on a number of occupations including nurses and physical therapists, physicians, technology professionals, dentists, and researchers and professors at universities.

The rule makes it impossible for plaintiffs to continue to provide core services and some may cease operations.

The rule is already causing plaintiffs to have difficulty meeting customer demands because of the rule and they are having to forego hiring and are terminating employees subject to the new rule. US workers are also at risk if employers have to shut down because of the new rule.

US employers will be forced to move operations out of the US to hire workers at an affordable wage. However, startup companies and nonprofits may not have this option and will be hurt more.

A lot of US worker positions depend on H-1B hiring. Moving positions overseas or companies shutting down will impact them as well.

Claims for Relief

Claim 1 – Failure to Observe APA Procedure

Under the APA, a court must set “aside agency action” that is “not in accordance with law.”

The IFR constitutes a legislative rule and has the force of law.

DOL did not comply with the procedural rules required to issue a legislative rule and no good cause exists for its failure to comply. It provided no notice, not comment period, did not consider harm to plaintiffs and the public and did not consider the reliance interests of the plaintiffs and the public.

DOL lacked good cause to do this and has not found notice and comment procedures would be impracticable, unnecessary or contrary to the public interest.

Claim #2 APA – Arbitrary and Capricious

The APA states that a court must set aside an agency action that is arbitrary, capricious or an abuse of discretion. DOL failed to justify the change in the rationale for its unprecedented change to the prevailing wage determination.

DOL must supply a reasoned analysis for the change and cannot simply disregard rules on the books.

DOL failed to consider the interests of various industries impacted by the rule.

15,000 jobs no longer have wage levels under the new rule. “As a result, a rural doctor must be paid the same as a big city anesthesiologist and both of these doctors would be paid the same as a labor specialist or first-year lawyer.

Claim #3 – APA – Acting in Excess of Statutory Authority

8 USC 1182(p)(4) requires a governmental survey to determine the prevailing wage and that a survey “shall provide at least 4 levels of wages commensurate with experience, education and the level of supervision.” The new wage levels are not “corresponding in size, extent, amount or degree” with the individual’s experience, education, and level of supervision.

“These are arbitrary wage levels meant only to disrupt the labor market and discourage the hiring of immigrant workers, as the public statement of the Secretary of Labor corroborate…The economic reasoning given for these new wage levels is nothing short of factually incorrect.”

Because the wage levels are not supported by fact and are not commensurate with an individual’s experience, education, and level of supervision, they are not supported by statutory authority. Thus, the rule violates 5 USC 706(2)(C).

Claim #4 – APA – Acting in Excess of Statutory Authority

Under the Immigration and Nationality Act, employers must pay H-1B, H-1B1, and E-3 the greater of the actual wage or the prevailing wage. INA 212(n)(1). DOL must use the best information available. INA 212(n)(1)(A)(II). Under the new system, the wages used will always be in excess of the actual wages paid for the same position thus ending the distinguishing between actual and prevailing wages. Because the new methodology will always exceed the actual wages US employers pay US workers, the IFR is not in accordance with the law and should be set aside in its entirety. Thus, the rule violates 5 USC 706(2)(C).

Claim #5 – APA – Acting in Excess of Statutory Authority

8 USC 1182(n) requires employers to pay the higher of the actual wage or the prevailing wage and that it be based on the best available information. Over 14,000 jobs have defaulted to $100,00 per hour or $208,000 per year that DOL readily admits is not based on the “best information available.” The IFR contravenes the INA’s requirements in this regard and should be set aside.

Claim #6 – APA – Acting in Excess of Statutory Authority

The INA requires four levels of wages commensurate with experience, education, and the level of supervision. 8 USC 1182(p)(4). The IFR collapses 14,000 jobs to a singular wage across all skill levels and regardless of skill and experience. Also, the methodology of the rule is mathematically flawed.

The IFR’s new formula requires the arithmetic mean of the tenth decile (the 95th percentile of OES wages) to set wages at level 4 that skew the average of the top decile higher causing unlawfully shifts to level 2 and 3 wages higher. The IFR contravenes the INA’s requirements in this regard and should be set aside.

Claim #7 – APA – Acting in Excess of Statutory Authority

The IFR unlawfully conflicts with 8 C.F.R. § 214.2(h)(4)(ii).    

Under the IFR ” an individual with a master’s degree and little-to-no work experience is the appropriate comparator for entry-level workers in the Department’s PERM and specialty occupation programs for purposes of estimating the percentile at which such workers’ wages fall within the OES wage distribution.”  Thus, entry-level workers are being compared to workers with master’s degrees. Plus, the IFR says level 1 should fall within the 32nd and 49th percentiles of the wage distribution, but then end up using the 45th percentile rather than the 40th.

The IFR contravenes the regulations that specifically designate certain professions as “specialty occupations” that do not require a master’s degree.  8 C.F.R. § 214.2(h)(4)(ii).

The IFR, therefore, contravenes the INA and must be set aside

Prayer for Relief

The plaintiffs are seeking to enjoin the Department of Labor from implementing the new calculations of wage levels or otherwise implementing the IFR.

Order that the promulgation of the IFR violated notice and comment procedures under the APA and therefore must be set aside.

Require the DOL to immediately reissue all prevailing wage determinations issued under the IFE using the formulae in place on October 7, 2020.

Award plaintiffs attorney fees and grant any further relief the court deems just and proper.