Another Day, Another Immigration Executive Order: Now Federal Contractors are Targeted

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The trend of recent months to curtail employment-based immigration, purportedly prompted by the coronavirus pandemic, continues unabated. On August 3, 2020 President Trump issued yet another executive order, this one entitled, “Executive Order on Aligning Federal Contracting and Hiring Practices With the Interests of American Workers” (“EO” or “Executive Order”). The new EO focuses on federal contractors (and their subcontractors) who employ H-1B and other nonimmigrant foreign workers. While the Executive Order itself imposes no new entry or other immigration restrictions, it instructs the Department of Labor (“DOL”), Department of Homeland Security (“DHS”), and other agencies and departments to take steps that undoubtedly will lay the groundwork to limit H-1B employment in the near future.

Background to the EO and the TVA

As he signed the Executive Order, President Trump highlighted alleged abuses of U.S. workers by the Tennessee Valley Authority (TVA), noting that the EO would prevent federal agencies from unfairly replacing U.S. workers with lower-cost foreign labor. The White House indicated that the TVA had planned to outsource many technology jobs to companies based in foreign countries. The EO signing ceremony included a meeting with U.S. tech workers, where a TVA employee described how American workers had been asked to train their foreign replacements. The employee also claimed that TVA’s action could have caused more than 200 highly skilled American technology workers in Tennessee to lose their jobs to foreign workers hired on temporary work visas.

What the EO Says

Broadly, the Executive Order directs all federal agencies to review existing contracting (and sub-contracting) practices to determine if those practices, either through offshoring of positons or use of temporary foreign labor, adversely affect U.S. workers.

Under the EO, within 120 days Federal Agencies and Departments are required to issue a report to the Office of Management and Budget summarizing (i) the extent of a contractor’s (or a subcontractor’s) use of H-1B workers, the nature of the work, and the effect on U.S. worker opportunities and national security, and (ii) whether a contractor (or subcontractor) engaged in off-shoring and, if so, whether there was negative impact on U.S. workers (including whether they were eligible for Trade Adjustment Assistance benefits), on Federal procurement efficiency, and on national security. The EO also requires that the agencies propose corrective actions and compliance timeframes.

Acting on the premise that “employers trade American jobs for temporary foreign labor,” the Executive Order also directs DOL and DHS, in Section 3, within 45 days, to take action:

. . . as appropriate and consistent with applicable law, to protect United States workers from any adverse effects on wages and working conditions caused by the employment of H-1B visa holders at job sites (including third-party job sites), including measures to ensure that all employers of H-1B visa holders, including secondary employers, adhere to the requirements of section 212(n)(1) of the Immigration and Nationality Act (8 U.S.C. 1182(n)(1)[the provision authorizing DOL to protect and regulate the wages and working conditions of H-1B workers]).

Although the Executive Order requires no immediate action from federal contractors, it undoubtedly portends further steps, likely including entry restrictions, increased DOL and DHS audits and investigations, and more burdensome reporting requirements.

Related Developments

Likely related, the EO arrives alongside a new Memorandum of Agreement (MOA) between the DOL, and a DHS component, U.S. Citizenship and Immigration Services (USCIS). While the text of the MOA has not yet been disclosed a July 31, 2020 DOL news release states the DOL and DHS, acting through USCIS, will provide each other access and share information about immigrant and nonimmigrant petition records and data contained within the Office of Foreign Labor Certification’s labor certification and labor condition application databases.” The MOA also “establishes processes by which USCIS will refer suspected employer violations within the H-1B program to the Department of Labor that USCIS identifies in the course of adjudicating petitions.”

In recent years, the DOL has increasingly focused on H-1B compliance and promoted greater transparency in the employment of foreign temporary workers. The MOA data is likely be used in conjunction with data mined from questions about secondary employers and job sites found on LCA.

This enhanced collaboration is clearly meant to spur increased investigations and audits targeting alleged misuses and abuse of work visa programs. Readers should note, however, that Immigration and Nationality Act (“INA”) § 212(n)(2)(G)(ii) and (v) place investigative constraints on DOL’s use of employer-submitted information for purposes of H-1B enforcement activities, and here may lie a potential affirmative defense.

What does this mean to federal contractors and sub-contractors?

To the extent that the review and reporting provisions of the Executive Order mirror those in other Trump-era immigration proclamations, they appear intended to establish the factual premise to support yet further employment-based immigration restrictions and burdens. These could foreseeably include:

  • Amendments to the Federal Acquisitions Regulation (FAR) to chill use of foreign labor;
  • Use of the authorities of the DOL Office Federal Contract Compliance Practices (OFCCP) to police alleged favoritism toward sponsored foreign workers;
  • Increased use of the authorities of the Department of Justice’s Immigrant and Employee Rights (IER) section to target federal contracting practices, including an expansion of IER’s 2017 Protecting U.S. Workers Initiative.

Much speculation has arisen since the EO was issued regarding the as-yet unknown outcome of the 45-day review and reporting period. Foreseeing a worst-case scenario, federal contractors should consider the possibility that a further order might require the filing of a Labor Condition Application (LCA) by both the H-1B sponsor and any third-party entity controlling the location where an H-1B may be placed. This cumbersome requirement could come as an independent directive, or part of a new DOL regulation, that (we understand) has already been drafted and is currently under revision.

“As we speak, we’re finalizing H1-B regulations so that no American worker is replaced ever again. H1-Bs should be used for top, highly paid talent to create American jobs, not as inexpensive labor program to destroy American jobs.”

Either way, any mandate, would build upon the November 2018 changes to the LCA form which required notation of the name and address of any third-party establishment where H-1B workers would be placed. The LCA filing is required for employers seeking to sponsor employees for certain nonimmigrant visas. The EO may thus presage an increase in intra-governmental awareness of companies using H-1B workers supplied by third-party vendors, even where the companies sponsor few or no H-1B workers directly.

The LCA now already requires H-1B employers to provide significantly more information about worksites, the specific numbers of sponsored H-1B workers at each of these sites, and, as noted, the legal name and address of end-user entities where any third-party H-1B workers will be posted. These changes were made, according to the DOL, “to better identify systematic violations and potential fraud, and provide greater transparency for agency personnel, U.S. workers, and the general public” It remains to be seen whether regulatory or enforcements actions that DOL, DHS, or DOJ might take at the prompting of the EO contravene the INA or existing regulations, and whether any such actions would survive the foreseeable ensuing litigation brought by employers or business organizations.

Who is Affected?

Section 2 of the EO affects contracts (including subcontracts) awarded by a federal agency in fiscal years 2018 and 2019. Section 3 will likely be construed more broadly; it appears to apply to all federal contractors. Any eventual directives, however, will predictably describe the type of federal contracts that are bound, including the contract performance period, the dollar amount of the contract, and any exemptions. It is likely that new restrictions will include a flow-down clause, obligating federal prime contractors to require their subcontractors likewise to comply. Much like the FAR E-Verify mandate, this type of flow down would significantly increase the number of U.S. employers affected by any eventual directives growing out of the EO.

What Should Affected Employers be Doing Now?

In a briefing statement, the White House said, “President Trump initiated reforms to the H-1B program to prioritize high-wage workers and close loopholes to ensure American workers are not displaced by low cost foreign labor”. Loopholes, however, are in the eye of the beholders. H-1B foreign workers often fill critical voids for many U.S. companies and will continue to do so as the nation returns to business and rebuilds post COVID-19. Accordingly, we recommend that employers consider the following precautions even before the announcement of government actions that will foreseeably follow this EO.

Ensure information on immigration applications and LCAs is accurate and current.

  • Carefully craft Master Services Agreements and Staffing Agreements to require of the service provider:
    • the disclosure of the use of foreign workers,
    • compliance with all immigration laws and regulations, and
    • an express limitation on joint-employer liability.
  • Know Your Employee (KYE) ala the KYC (Know Your Customer) banking rules: ensure that you know who you are hiring and conduct the appropriate background and verification checks.
  • Ensure you are prepared for governmental investigations and unannounced site visits.
  • Be ready to respond to demands or requests from the federal agencies and departments with which you contract inquiring about your use (and that of your subcontractors) of sponsored foreign workers:
    • When these requests arrive, work with counsel to formulate your response.
    • Resist the urge to solicit specific information from your subcontractors regarding their use of foreign labor, without first discussing joint employer and constructive-knowledge implications with counsel.
  • If mandated under the FAR E-Verify clause, ensure you are enrolled and where appropriate, have correctly “flowed down” requirements to the appropriate parties.

Most importantly, no one should dismiss the Executive Order as mere window dressing. It is more of a Trojan Horse likely to bring additional challenges for federal contractors that by necessity depend on sponsored foreign labor for IT and other key functions.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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