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Summary of Department of Labor’s 12/20/00 Interim Final H-1B Regulation

(PROVISIONS APPLICABLE TO H-1B DEPENDENT EMPLOYERS –
SEPARATE SUMMARY COVERS PROVISIONS OF GENERAL APPLICABILITY)

AMERICAN IMMIGRATION LAWYERS ASSOCIATION

NOTE: The regulation is extensive, complex and highly detailed.  This summary touches on only some of the issues raised by the regulation—there are many other items that are not covered here.  In any event, this summary cannot substitute for the attorney’s own review and analysis of the regulation.  It is strictly an attempt to highlight a handful of the changes initiated by the regulation.

DEFINING H-1B DEPENDENT EMPLOYERS
What are the proportions of H-1B employees to overall workforce that constitute H-1B dependency? Under ACWIA, an employer is H-1B dependent if it has in the U.S.: (a) 25 or fewer full-time equivalent (“FTE”) employees and more than 7 H-1B employees; (b) between 26 and 50 FTE employees and more than 12 H-1B employees; or (c) at least 51 FTE employees and a number of H-1B employees equal to at least 15% of the employer’s FTE employees.  In counting the number of FTE employees for this purpose, H-1B employees are included.

What is the formula for determining if an employer is H-1B dependent? The DOL views the formula as requiring a comparison of two dissimilar numbers: an actual head count of H-1B employees, without regard to full or part-time status, and a computation of the employer’s FTE employees.  If the ratio of H-1B employees to the total workforce is “obvious and can easily be compared to the definition of ‘H-1B dependency’,” the employer’s status as dependent or non-dependent need not be calculated.  If the employer’s dependency status is “borderline”—i.e., not readily apparent—the employer can use a “snap shot test” to determine if calculation of the status is necessary.  Employers of 51 or more persons would divide the number of H-1B employees by the number of full-time employees. (It would not be necessary to perform the FTE calculation for part-time workers described below.)   If this “snap shot” results in a ratio of less than 15%, the employer is not dependent and no further calculations are necessary. If the “snap shot” gives a result of 15% or more, and the employer believes it is actually non-dependent, then it must calculate the FTEs of its part-time workforce as described below.  Smaller employers (50 or fewer full and part time employees) may compare a head count of their workforces to the definition of H-1B employer for this “snap shot” test.

What is a full-time equivalent employee? Under the IFR, an FTE employee is either one who actually works full time, i.e., at least 40 hours per week unless the employer can show that a lesser number of hours are considered full-time in its regular course of business. Under the DOL regulation, full-time can never be less than 35 hours per week.   The IFR offers two options for calculating how many part-time employees equal an FTE: 1) count each part-time worker as ½ of an FTE for the calculation, thus requiring no records of actual hours worked and no complex calculations; or 2) total the hours worked by all part-time workers in the pay period and divide that total by the employer’s standard hours for full-time employment (at least 35 hours per week), based on the last payroll or, where records of hours of work are not maintained, a reasonable approximation of the hours worked, such as a standard work schedule.

Who is counted as an employee in calculating dependency? Bona fide independent contractors and consultants are not counted as employees. The DOL will accept the employer’s designations of who are “employees,” provided they are consistently treated as employees for all purposes, including FICA and FLSA. The count of employees should be based on the most recent records of the employer before filing the LCA.

Who is the employer? 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 a 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,” such as a service organization (health care organization, law firm, accounting firm) and other organizations that regularly perform services for the first organization and either are shareholders or partners in the first organization or the interest in the second organization is held by highly-paid employees of the first organization.  At present, the Treasury Department has no regulations governing employee-leasing situations and thus such situations are not covered in this regulation.  If, however, the Treasury Department issues regulations on the subject in the future, members of employee leasing groups might be treated as a single employer. This “single employer” definition is only to be used in dependency calculation, and not in any other element of H-1B LCA filing or enforcement.

When must the calculation of H-1B dependency be made? Employers must determine their dependency status each time an LCA (existing or new) is used to support an H-1B petition (for new employment or an extension of employment). The LCA filed in support of that petition must accurately state the employer’s dependent or non-dependent status. Stating that DOL “disagrees” with the argument that invalidating existing, valid LCAs for H-1B dependent employers is retroactive rule-making, the IFR requires that employers wishing to file petitions for new H-1B employees or to extend the status of existing H-1B employees must determine their dependency status. If they are H-1B dependent, they must file a new LCA indicating that status to support those petitions, and may not use existing, certified LCAs, even if they are still valid and have open “slots” on them.  Those LCAs are still valid for existing H-1B employees, and the employer need not comply with the new attestation requirements for those employees, until they wish to file for extensions of status for those employees. An employer undergoing a corporate reorganization must also recheck its dependency status before filing new LCAs for future petitions (see the summary of provisions of general applicability for the regulations regarding the need for documentation in a corporate restructuring situation).

What records need to be kept of the dependency determination? The IFR does not require any documentation of the employer’s determination if its “snap shot” makes its dependency status readily apparent, either dependent or non-dependent. However, if the employer’s snapshot is over 15% and it makes a further calculation that it is non-dependent, the employer must retain a copy of the full computation. If an employer’s status changes from dependent to non-dependent, the employer must keep a copy of the full calculation used to make this determination. If an employer uses the IRS “single employer” test to determine dependency, it must keep records of which entities are included in the definition of single employer as well as the computation performed (either the snapshot or full calculation). Also, if any employees are included in the calculation that are not on the employer’s normal payroll, the employer must have documentation to substantiate that the workers are indeed employees. None of this documentation must be kept in the public access file, but must be made available to DOL in an investigation.

What indication of the employer’s status is included on the LCA? The new LCA form will have three options for the employer to check: 1) the employer is non-dependent; 2) the employer is dependent but the only H-1Bs to be sponsored under this LCA are “exempt” H-1Bs (see below); or 3) the employer is dependent, the employees are non-exempt, and the employer will comply with the additional attestations.  According to the regulation, the LCA cannot be used for new H-1B nonimmigrants or extensions of H-1B status if an employer’s dependency status changes from that indicated on the form (either to dependent or non-dependent). Likewise, if the LCA indicates it will be used only for exempt H-1B nonimmigrants, it may not be used to support petitions for non-exempt H-1Bs. Dependent employers must file separate LCAs for exempt and nonexempt H-1Bs even in the same occupation.
WILLFUL VIOLATORS
What constitutes a “Willful violator” for purposes of the additional attestations and random investigations authorized under ACWIA? Under the regulation, any employer who is found to have committed a willful failure to meet a condition of the LCA or a misrepresentation of a material fact on the LCA, is required to make additional attestations for H-1B dependent employers and be subject to random DOL investigations during the five year period following the date of the final determination of such violation (on or after October 21, 1998) either in a DOL proceeding (relating to LCA compliance) or in a Department of Justice proceeding (relating to failing to offer employment to U.S. workers under the recruitment attestation).  The section of the preamble discussing the random audits states that the date of the “finding” of willful violation or misrepresentation occurs when the administrative review process is completed, as described in Section 655.855(b) of the regulations (which would be the date on which the final administrative appeal is exhausted and a finding is issued).
EXEMPT H-1B NONIMMIGRANTS
What are “Exempt H-1B Nonimmigrants” generally? Under the statute, “exempt H-1B nonimmigrants” (for whom an H-1B dependent employer is not obliged to meet the additional attestation elements) are those holding a master’s or higher degree or its equivalent in a specialty related to the intended employment, or who earn wages (including cash bonuses and similar compensation) at an annual rate of at least $60,000.

Who will make the determination whether a nonimmigrant is “exempt”? The IFR states DOL’s “understanding” that INS will examine the exempt status of any nonimmigrant whose petition is supported by an LCA that indicates it is to be used only for exempt nonimmigrants. This examination will be based on the wage level indicated for the individual on the LCA and the petition, or, if this wage level is not adequate to support an exempt status, whether the individual’s educational level qualifies for exempt status. If the INS’ initial determination is that the individual is not exempt, then INS will, according to the preamble to the DOL regulation, issue a Request for Evidence seeking a new LCA or documentation of the individual’s exempt status. DOL will, in an investigation, determine whether an individual actually received the required wage rate. If the wage rate is not adequate, then DOL will examine the educational level of the individual (including whether the field of study is relevant). However, under the terms of the IFR, the DOL will treat as conclusive INS’ determinations of exempt status based on educational attainments, unless the INS determination was based on false information.

What documentation of the “exempt” status must be kept? DOL will not require that individual petitions be kept in the public access file, but the employer must keep them in case of a DOL investigation. However, the public access file must include a list of the names of H-1B employees whose petitions are supported by any LCA indicating that it will be used only for exempt nonimmigrants, unless the employer does not employ any non-exempt H-1B employees, in which case a simple statement to that effect must be included in the public access file.

How is the $60,000 annual rate determined? The regulation indicates that the “cash in hand, free and clear” standard applicable to satisfaction of the prevailing and actual wage requirement also applies to the question of whether the full $60,000 annual rate was actually paid.   Under the regulation, part-time workers may not meet this requirement unless they actually receive $60,000 for their part-time work (i.e., the $60,000 cannot be prorated for part-time employees). Employees who have worked less than a full year will retain their exempt status if they received at least the pro rata share of the $60,000 annual requirement for the period.

How is the “equivalent” of a degree determined? DOL rejects the use of work experience equivalency for this standard, and instead requires the individual to have the actual degree or its foreign equivalent. With regard to determining equivalence of foreign degrees, the IFR requires that the degree be from an institution recognized or accredited by the law of the country, and specifies that where an employer attests that an H-1B nonimmigrant is exempt based on education, rather than wages, the employer must provide, at the request of either INS or DOL, copies of the degree and transcripts of courses taken and grades earned.  DOL also is proposing (for comment, but not as part of the IFR) to include the guidelines published by the American Association of Collegiate Registrars and Admissions Officers (AACRAO) regarding equivalency of foreign degrees as part of the Final Rule for use in determining whether a foreign degree is equivalent to a U.S. master’s degree. As an alternative, DOL proposes that employers would be able to present evidence from a credential evaluation service if there were no foreign degree listed as equivalent or where a degree was awarded in the past and circumstances have changed. The DOL regulation does not address how INS might evaluate degree equivalency for these purposes.

What is “a specialty related to the intended employment”? The IFR adopts a standard that in order to be considered “relevant” the degree must be “generally accepted in the industry or occupation as an appropriate or necessary skill or credential.” In order to determine whether a credential meets this standard, the DOL, in the preamble, indicates its intention to use the Occupational Outlook Handbook and O*NET as guides. The preamble also suggests that DOL may examine other evidence of industry standards in an investigation. DOL also seeks comment on whether or not to specifically cite the OOH and O*NET as primary sources for determining whether a degree is in a specialty related to the occupation in the Final Rule and proposes that where neither of the two primary sources recognizes the credential, then the employer may submit a report from a credentialing organization that the degree is recognized in the industry as an appropriate and necessary skill.
DISPLACEMENT ATTESTATION
Which employees are protected from displacement? The statute provides that “employees of the employer” and “employees of the other employer” in contractor situations (“secondary displacement”) are protected from displacement by H-1B nonimmigrants. The IFR uses a “common law” test to determine whether an individual is an “employee” of either the principal employer or the other employer. However, the IFR does not include a detailed list of factors that determine common law employment, as was proposed in the NPRM. The preamble reiterates that the common law test requires an assessment of all of the factors of the employment, but also states that the right to control the means and manner of work will be a key determinant, with no single factor controlling. The preamble does not suggest any particular test, but does state that an employer’s designation of a worker’s status for tax purposes is not controlling as to the matter of that worker’s status for purposes of the H-1B program. The preamble also emphasizes that the common law test is not only for use in the displacement context, but for any area in the H-1B program in which the question of an employment relationship may arise. However, the IFR does state that the employer of any H-1B nonimmigrant is, by definition, the petitioning entity.

The employee must also be in an “essentially equivalent job” to that held by the H-1B nonimmigrant. The IFR indicates that the comparison will be one-to-one where appropriate between the displaced worker and the H-1B nonimmigrant, but may be broader “where appropriate,” such as in cases where a department is eliminated and then the function staffed with H-1B nonimmigrants. The comparison will be based on the job responsibilities, focusing on the core elements of and competencies for the job, the qualifications and experience of the workers in question, which must be substantially equivalent (the IFR indicates that 10 years of experience would be “substantially equivalent” to 15 years of experience and that degrees from any accredited university would be “substantially equivalent” regardless of the stature of the institution). The comparison also must be for positions that are in the same area of employment, i.e. the area within normal commuting distance of the worksite.

What circumstances does the “secondary displacement” prohibition cover? The secondary displacement prohibition controls when an H-1B employer places the nonimmigrant at a worksite operated or owned by another employer where there are “indicia of employment” between the H-1B professional and the other employer.  DOL notes that such “indicia” do not have to meet the definition of “employed by the employer” (based on the common law test), but the IFR includes a list of relevant indicia to include:

  • The other employer has the right to control when, where and how the nonimmigrant performs the job (the presence of this indicator would suggest that the relationship “approaches” the relationship that triggers the secondary displacement provision);
  • The other employer provides tools, materials and equipment;
  • The work is performed on the premises of the other employer (this alone would not trigger the secondary displacement provision);
  • There is a continuing relationship between the nonimmigrant and the other employer;
  • The other employer has the right to assign additional projects to the nonimmigrant;
  • The other employer sets the hours of work and the duration of the job;
  • The work performed by the nonimmigrant is part of the regular business of the other employer;
  • The other employer is itself in business; and
  • The other employer can discharge the nonimmigrant from providing services.

What is considered an impermissible layoff vs. a permissible termination for determining “displacement”? The IFR clarifies that an employer may terminate an employee for inadequate performance, violation of workplace rules, or other cause related to the worker’s performance or behavior on the job. The worker may also voluntarily depart or retire (although DOL will assess whether “constructive discharge” may have taken place in this circumstance). In cases where the U.S. worker is discharged because of the expiration of a grant or contract, where such expiration essentially ends the need or funding for the job, DOL will not consider it to be a lay off, but will examine closely to determine whether or not the employer usually moves employees to a new contract or project when such expirations occur. The preamble states that in situations where an employer normally lays off U.S. workers when alternative work is not available and then rehires them when it is, DOL will expect the employer to first contact the laid off U.S. worker before hiring an H-1B nonimmigrant. An employer may also offer a U.S. worker who loses employment an alternative job offer that is a “similar employment opportunity” at equivalent or higher compensation. The alternative offer does not need to be in the same area of employment, but in a case where the job location is different, DOL will assess cost of living differentials and payment of moving expenses in determining whether the offer is at “equivalent or higher compensation.” The comparison of the job opportunities will also include comparison of compensation and benefits, levels of authority, discretion and responsibility, opportunity for advancement and tenure and work scheduling.

What inquiry/documentation is needed for a secondary placement situation? The placing employer is required to exercise “due diligence” in enquiring of the other employer as to displacement of U.S. workers during the relevant period (90 days before and after placement of the H-1B nonimmigrant at the worksite). The LCA and the IFR make clear that making this inquiry will not protect a placing employer from sanctions if the secondary employer does, in fact, displace a U.S. worker within the relevant period.  However, unless the employer knew or had reason to know of the displacement, the employer would be subject only to monetary penalties, and not to debarment. The other employer has no liability in such situations. The IFR suggests that the placing employer may accomplish this inquiry in several ways, including securing written assurance from the other employer regarding displacements, preparing a written memorandum of an oral statement of the other employer, or including a secondary displacement clause in the contract with the other employer. The IFR also states that the employer may be required, in the exercise of due diligence, to make further inquiries when it has other information which indicates that U.S. 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 its own employees, or following news reports of layoffs by the other employer) if the information is available before the placement of the H-1B nonimmigrant.

What documentation is required to support the direct displacement attestation? The employer is required to retain (not create) all records that it makes or receives concerning the circumstances under which each U.S. worker in the same locality and occupation as the H-1B nonimmigrant left the employer’s employ during the relevant period (90 days before and after the petition filing) and any such U.S. worker was terminated by the employer’s action. The documentation should contain the following: name, last-known mailing address, occupational title and job description, any documentation concerning the employee’s experience and qualifications and principal assignments. All documentation prepared by the employer relating to the departure of such employees, including any offers of alternative employment, notification of termination and any responses thereto, must be retained as well. These records are not required to be in the public access file, just available to DOL upon request.
RECRUITMENT ATTESTATION
What are the standards for recruitment? The employer is required to engage in “good faith recruitment” using “industry-wide standards.” The IFR states that the employer is not required to utilize any particular number or type of recruitment, but must use strategies that have been successfully used by other employers in the industry to recruit U.S. workers. An employer may not use the “least common denominator” of methods that are unsuccessful at recruiting U.S. workers, even if such methods are common. An employer must, at a minimum, recruit both internally and externally and use both active and passive methods. Examples of active methods include attending job fairs, using college placement services or headhunters, and internal employee training. Examples of passive methods include print or Internet advertisement and internal job postings. The language of the regulation appears to require that at least some recruiting must target former employees.

The employer has the burden of proving, in an 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. health care staffing firms must meet the standards of the health care industry, and technology-staffing firms must meet the standards of the information technology industry generally. The preamble also makes clear that an employer may advertise for multiple similar positions, and such recruitment may be acceptable if it accords with “relevant industry standards” applicable to that employer. The preamble also cautions employers that disproportionate use of certain recruitment methods, such as college campus recruiting, may have the unintended consequence of discriminating against older workers.

The employer’s recruitment must also be in “good faith.” DOL determines that this means that U.S. workers must be given an equal and fair opportunity to obtain the position. An employer must not skew the recruitment process against U.S. workers or in favor of H-1B nonimmigrants. Specifically, the IFR states that an employer may not give preference to its current nonimmigrant workers who do not yet have H-1B status (such as students on practical training). DOL also states that it would look with disfavor upon any practice that screens the applications of H-1B nonimmigrants or prospective H-1B nonimmigrants differently than U.S. workers.

The preamble notes that DOL has rejected its presumption that successful recruitment of U.S. workers would necessarily meet its good faith recruitment standard, since the perception that a negative presumption would attach to unsuccessful recruitment was evidenced from the comments. However, the preamble also notes that in its enforcement, DOL will look closely at the recruitment efforts of employers who have not been successful in hiring U.S. workers. Employers may not apply otherwise-legitimate selection criteria in a way that skews the recruitment process in favor of H-1B nonimmigrants, nor may they apply their screening criteria in a discriminatory manner. Such violations would evidence the employer has failed to recruit in “good faith.”

What are the standards for selection? The employer must offer the job to any equally or better qualified U.S. worker who applies. The employer may use any “legitimate selection criteria relevant to the job that are normal and customary to the type of job.  While the Department of Justice has jurisdiction over claims from U.S. workers who allege they were not offered the job but were equally or better qualified, DOL asserts its authority to determine whether or not legitimate selection criteria were used. The IFR indicates that each criterion must meet three standards: 1) legitimate, meaning legally cognizable and not violating any applicable laws, 2) relevant to the job, meaning having a nexus to the job and its duties and responsibilities, and 3) normal and customary to the type of job, meaning necessary and appropriate based on the practice or expectations of the industry, rather than the preferences of the particular employer. The preamble indicates that DOL will look to the Occupational Outlook Handbook and O*NET as guidelines for what constitute acceptable criteria that are normal and customary for the job, and that those resources will be used as a tool in DOL enforcement. However, DOL acknowledges that these sources would not be definitive. DOL also cautions against recruitment practices and selection criteria that have the effect of discriminating against U.S. workers generally or against groups of workers, such as older workers and minorities.

What documentation is the employer required to maintain with regard to its recruitment? The employer must make and maintain documentation of the recruiting methods used, including the places and dates of any advertisements, postings or other methods used, the content of the advertisements or postings, and the compensation terms, if such are not included in the advertisements or postings. The documentation may be in any form, including a summary memorandum to the file. The employer must keep any documentation it has received or prepared concerning the treatment of applicants for the position, such as copies of applications and related documents, test papers, rating forms, records of interviews, and records of job offers and responses. The preamble emphasizes that DOL is not requiring that the employer create any documents relating to the treatment of applicants, but it must keep any documents it does create or receive. A summary of the recruitment methods used and periods for recruitment must be in the public access file. All other documentation must be made available to DOL upon investigation and request.
KEY DATES

Key dates. Unless otherwise noted, the provisions of this regulation are effective January 19, 2000.  Comments are due February 20, 2001, except for comments on a new proposed form for collecting information to determine if a violation has been committed.  Comments on that form are due January 19, 2001.