Business leaders's have focused their efforts to meet demands for highly skilled technical workers by lobbying Congress to increase quota limits for temporary H-1B Visas. When Congress’s Joint Economic Committee held hearings on "Removing Barriers to the New Economy" in early June, H-1B visa limits were high on its list. High tech industry leaders including Microsoft Chairman Bill Gates, supported quick passage of pending legislation to raise visa limits. Gates and his colleagues told the Committee how "the H-1B visa limit is used up quickly" and that companies across the country are forced to look outside the U.S. for highly skilled workers, particularly in the information technology field.

    As a national high-tech center, Massachusetts has become a home base for the growing  support and lobbying for H-1B visa increases while press reports feed the frenzy for quick Congressional action.  The Boston Globe report last week described the frustration of Massachusetts employers, from Franklin-based EMC Corp. to Harvard University.  Despite the frenzy, scarce attention has been given to the potential legal risks and costs employers can face when they turn to H-1B visa increases as a quick, lower-cost solution their staffing needs. 

    Employers and their legal advisors need to know the controversial and potentially costly worker status and employee classification issues under immigration and labor laws and how these laws can increase the potential costs of adopting a "rush to hire" temporary highly skilled foreign workers" business strategy.  

   Many industries and firms leading the push to increase visa quotas are the same ones that actively hired and then misclassified temporary and other contingent workers as a cost-saving hiring strategy for years before the IRS found unlawful misclassification by Microsoft and throughout high-tech and other industries a decade ago. Those IRS findings resulted in the Microsoft employee misclassification class action case first filed in 1993.

H-1B Visas and High Costs of Worker Misclassification

H-1B visas raise these legal controversies because they are temporary visas. They permit foreign workers enter the U.S. temporarily, usually for a particular work assignment. In their rush to hire workers through this system employers tend to overlook this issue. As a result, both workers and employers become trapped in complex worker classification controversies where the wrong practice or policy can result in legal claims based on misclassifying a worker as an employee or independent contractor.

The high costs of worker misclassification were vividly illustrated in the ongoing landmark 9^th Circuit Court of Appeals ruling in Vizcaino v. Microsoft (May 14, 1999, request for review by Supreme Court denied, January 3, 2000). Ten years after an IRS audit discovered rampant and intentional misclassification in hiring temporary and other contingent workers as "independent contractors", Microsoft’s costs resulting from this much-publicized case have been estimated at $100 million. This month (June 7, 2000) an $18.6 million settlement was announced in another class action lawsuit brought by temporary and contract workers against King County, Washington for misclassification and denial of benefits. (Clark v. King County, June 7, 2000).

The controversial questions surrounding worker misclassification and high costs facing employers for unlawful employee classification decisions have led many businesses across the country to reexamine their hiring, worker classification and employee benefits policies to comply with tax and employee benefits law. But what about immigration law?

Applying Lessons from Microsoft and Clark to H-1B Immigration Visas

Both Vizcaino v. Microsoft and Clark v. King County involved federal tax and employee benefits law in finding unlawful employee misclassification. Immigration law, including the Immigration Reform and Control Act (IRCA) requires employers (with 3 or more employees) to verify that all employees they hire are legally entitled to be employed in the United States. INS regulations cover only workers the INS determines to be employees, and not independent contractors (emphasis added), under its own 8 factor worker status test. [See INS criteria attached]. Under INS regulations, determination is made on a "case by case basis"…"regardless of what the individual or entity calls itself ". In other words, Immigration law covers only workers who are determined to be employees under INS criteria, but then leaves it to the courts to decide. (emphasis added).

The Other Side: Are H1-B Visas Another Industry Strategy to Reduce Labor Costs at the Expense of American Workers?

Research from the government, private sector and unions reveal another, more insidious side to the H-1B Visa controversy: the use of temporary highly skilled foreign workers under such visas as an intentional cost-saving business strategy led by the high-tech industry.

Negative Population Growth (NPG), a national organization based in Washington, D.C., reports that:

• In 1995, then-Labor Secretary Robert Reich told Congress, "we have had numerous instances in which American businesses have brought in foreign skilled workers after having laid off skilled American workers, simply because they can get the foreign workers more cheaply. The [H-1B Visa] program has become a major means of circumventing the costs of paying skilled American workers or the cots of training them."

        (emphasis added);

• The Institute for Electrical and Electronics Engineers testified before Congress that, "...the available domestic labor supply is underestimated and the wisdom of expanding immigration is overstated";

• The president of the Communications Workers of America warned, "we should be careful about IT employers crying wolf just to enlarge the labor pool, depress salaries and benefits and undermine working conditions as has been done by other employers in the past."

        It may be tempting to criticize these arguments as organized labor’s attempt to protect itself. Unfortunately, as they sound eerily familiar to cost-saving strategies of hiring non-payroll temporary employees and misclassifying them as independent contractors. As described earlier, these practices were engaged in by many of the same businesses and industries now pushing so hard for more temporary H-1B visas.  The IRS, Labor Deparment and Federal Courts have confirmed that these practices violated both tax and employee benefits laws. We don't need another contoversial and costly legal timetomb, ignited this time by INS enforcement of  our Immigration laws.

Conclusion

With Congress and the President support dramatic increases in H-1B visa quotas, it appears to be a question of when, not whether, these quotas will be raised. Employers and their counsel need to learn the risks and potential costs of worker misclassification to avoid another worker misclassification and the different legal landscape of immigration law. Learning and complying with INS requirements is a necessary first step both lawyers and businesses can take today to avoid mistakes that can prove very costly for all parties in the future.

© 2000, REW Associates, Inc. All Rights Reserved.

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