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DOL’s Sudden Mandatory Pay Increase Rocks H-1B Worker Employers

Oct. 8, 2020, 9:31 AM

The U.S. Labor Department’s interim final rule changing prevailing wages for H-1B workers is set to go into effect Thursday, raising the pay for those visa holders by about 30 percent at each of the four wage levels laid out in federal law.

Even as some employers have already adjusted pay levels for those highly skilled workers, the size of the mandated increase could price out companies that depend upon them, immigration lawyers say.

“It is an earthquake for the H-1B program right now,” said Nandini Nair, immigration partner at Greenspoon Marder LLP in Edison, N.J. Employers looking to renew H-1B visas for workers could see a $30,000 to $40,000 increase in those workers’ wages.

“They cannot afford that, that is not something that is sustainable for many employers that I have spoken to,” she said.

Moreover, the unusual path the interim final rule took to its effective date may undercut its purpose, as the lack of notice and comment rulemaking could make it vulnerable to legal challenges.

The DOL wage rule was released Tuesday in partnership with a rule from the Department of Homeland Security that aims to narrow which jobs qualify for H-1B visas and how the employer/employee relationship is defined.

The DOL’s interim final rule—or IFR—takes effect immediately, while the DHS rule will go into effect in 60 days. The measures will be open for public comment once they are published in the Federal Register on Thursday.

Wage Increases Across the Board

The DOL concluded that the way it sets prevailing wages ”has allowed employers, in some cases, to pay foreign workers less than U.S. workers,” Deputy Secretary of Labor Patrick Pizzella said on a conference call with reporters Tuesday, heralding the rule’s imminent release.

There are four tiers of wages that an employer must pay to high-skilled guest workers, and the appropriate wage rate is determined by the job and region where the visa holder will be employed. The Labor Department approves H-1B wages by signing off on a labor condition application submitted by the visa applicant’s employer.

The new DOL regulation targets prevailing wage rates for H-1B visas, H-1B1 visas for guest workers in specialty occupations from Chile and Singapore, and E-3 specialty occupation workers from Australia, raising pay from the 17th, 34th, 50th, and 67th percentiles of the Bureau of Labor Statistics Occupational Employment Statistics database to the 45th, 62nd, 78th, and 95th percentiles of wage distribution.

According to Nair, for many years H-1B petitions subject to the program’s annual 85,000 visa cap were filed for level one wages—the lowest pay grade—because those workers were mostly entry level positions or STEM students in optional practical training.

Starting at Level Two

But in 2017, under the Trump administration, a shift began because U.S. Citizenship and Immigration Services, the agency tasked with adjudicating H-1B petitions, started seeking more evidence in support of an employer’s claim the position was truly a level one position and not an effort to import a foreign worker rather than pay an equivalent skilled American worker a fair-market salary.

In response, employers decided to start their baseline budgeting at the level two prevailing wage, Nair said.

Research co-authored by Daniel Costa, director of immigration law and policy research at the Economic Policy Institute, shows that shift Nair described in employer behavior. In 2015, 41% of approved labor condition applications were for level one wages, while in fiscal year 2018, only 16% of approved labor condition applications were level one. “They basically all shifted to level two,” Costa told Bloomberg Law.

Costa contends the new increase in wage levels likely won’t result in fewer H-1B visa holders in the U.S.

For fiscal 2019 data, more than 300,000 employer applications for level three and level four H-1B wage earners were approved, far in excess of the number of visas actually issued, Costa said. So even if all employers seeking H-1B workers at a level one or level two wage stopped sponsoring those workers because their salaries would be too costly, there would still be many more applicants for H-1B jobs than the number of H-1B petitions approved last year, he said.

Costa noted that in general, H-1B wage levels have “been way too low for way too long.” The DOL rule doesn’t do anything to stop employers from mis-classifying workers at the wrong wage level, he said.

“This is an administration that has not taken any actions in the past that would actually help workers, so I’m skeptical about the timing and consistency” of the latest rule, Costa said.

Legal Challenge Likely

A rule of this magnitude is very likely to be challenged quickly in court, attorneys told Bloomberg Law, despite the fact that prevailing wages have been updated over the years.

The Immigration and Nationality Act is “very general” in saying that people cannot come into the United States if they’re going to adversely affect the wages of U.S. workers, but it doesn’t give “any concrete details on how the Labor Department is supposed to measure that impact,” said Stephen Yale-Loehr, a professor of immigration law practice at Cornell Law School.

The agency has come up with rules over the years on how to calculate a prevailing wage, and those rules have been in place for many years “without a lot of controversy,” he said. “The legal question is whether the DOL can make such a large change through the rulemaking process, and whether the justification set forth in the IFR is reasoned enough to pass legal muster.”

According to Charles Kuck of Kuck Baxter Immigration Partners LLC, the reasoning the DOL has used to create these new percentages is “not tied to any legitimate data that reflects that these individuals, if paid the greater wage they’re now requiring, would in any way positively impact U.S. workers.”

Kuck cited the increase in level one wages for an entry level worker, who under the new rule has to be paid “the same as a worker with five years’ experience,” he said. “That is indefensible in any context, and certainly outside the scope and ability of the law under which the DOL is promulgating these new regulations.”

Kuck also noted the interim final rule’s potential susceptibility to a challenge under the Administrative Procedure Act.

“An interim final rule without any notice or comment would require an emergency, there is no emergency,” he said. “This move reeks of a rapidly sinking S.S. Trump.”

To contact the reporter on this story: Genevieve Douglas in Washington at gdouglas@bloomberglaw.com

To contact the editors responsible for this story: Martha Mueller Neff at mmuellerneff@bloomberglaw.com; Andrew Harris at aharris@bloomberglaw.com; Karl Hardy at khardy@bloomberglaw.com

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