Growing Demands for H-1B Visas Ignore Potential Misclassification Risks

Are less problematic alternatives available?

November 1, 1999
Current efforts to meet growing business demands for highly skilled workers have focused primarily on raising quota limits for H-1B visas to permit increased hiring of skilled foreign workers.

The need for skilled workers has been widely reported, though less attention has been given to the potential legal risks and costs employers can face when they turn to H-1B visa increases as a solution. Controversial issues of worker status and employee classification under immigration and labor laws greatly increase the potential costs of this business strategy. These potential costs must be included when assessing the merits of any legislative proposals to increase H1-B visa quotas.

H-1B Visas, Worker Classification, and the Microsoft Case
H-1B visas raise these legal controversies because they are temporary visas. They permit foreign workers to enter the United States temporarily, usually for a particular work assignment. Firms that hire workers through this system are hiring temporary workers. As a result, both workers and employers become trapped in complex worker-classification controversies where the wrong practice or policy can result in unexpected legal claims based on misclassifying a worker as an employee or independent contractor.

The high cost of worker misclassification was vividly illustrated last May in the landmark court ruling by the 9th Circuit Court of Appeals in the Vizcaino vs. Microsoft case. While Microsoft began as an employee tax and benefits matter, it has grown to symbolize the controversial questions surrounding worker misclassification and the costs that face employers for unlawful employee-classification decisions. Businesses across the country, including Microsoft, have been reexamining their hiring, employee classification and benefits policies in the wake of the 9th Circuit s ruling.

The 9th Circuit applied federal tax law and the IRS s "Common Law Factors" test in finding unlawful employee misclassification. Our immigration laws, applied by the Immigration and Naturalization Service (INS) provide their own standards and requirements for determining worker status, raising separate worker misclassification concerns.

Applying Lessons from Microsoft to Immigration Visas
Foreign workers who use H-1B visas and their employers are governed by the Immigration Reform and Control Act (IRCA), enforced by the Immigration and Naturalization Service (INS). All employers (with 3 or more employees) must verify that the employees they hire are legally entitled to be employed in the United States.

It specifically invokes worker-classification issues, covering only workers the INS determines to be employees, and not independent contractors, under its own eight-factor worker-status test. This test factors in whether the individual or entity does such things as:

  1. Supplies the tools or materials
  2. Make services available to the general public
  3. Work for a number of clients at the same time
  4. Have an opportunity for profit or loss as a result of labor or services provided
  5. Invest in the facilities for work
  6. Direct the order or sequence in which the work is to be done
  7. Determine the hours during which the work is to be done

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 leaves it to the courts to decide!

Adding hundreds of thousands more temporary foreign workers to our workforce by dramatically raising visa quotas will further increase the risks and costs of this ongoing legal controversy. Do we really want to further expand this flow before we fully understand potential worker classification risks? Do we really need another employee misclassification legal time bomb, this time potentially initiated by INS enforcement?

What Alternatives Are Available?
What other alternatives are available to avoid further potentially costly legal battles? One example is the Labor Department s new initiative providing Technical Skill Training Grants to retrain American workers with the skills needed to fill these positions offers one alternative deserving study and credit.

Recognizing the high demand for H-1B visas, particularly from technology and health industries, the Department s Employment and Training Administration (ETA) is providing private industry the opportunity to apply for $25 million to fund 15 to 20 private sector projects (with 50 percent matching funds) under the federal Job Training Partnership Act.

The program s priority is to focus on workers who can be placed directly in identified "specialty occupations" for which H-1B visas are intended. Grants are based on applicants identification of current skills shortages, their ability to target training specifically for industries that are dealing with H-1B-related skill shortages, and to deliver effective training programs to meet those skill needs.

This is only the first round for this new skills training initiative, but it s a good place to look for starters. With a November 1 application deadline, the agency is apparently acting quickly in this effort. Perhaps it s time for those companies who need highly trained workers to begin sponsoring worker re-training and re-education programs in their own home communities. In the long run, this may be a more cost-effective response than adding more fuel to the existing worker classification controversy.