Sen. Charles Grassley, R-Iowa, kicked off the latest debate in January by publicly calling on Microsoft to prioritize American workers over foreign guest workers as the software giant downsizes. In the wake of Grassley’s letter to Microsoft, questions have been raised about the legality of axing H-1B workers first. And H-1B critics have stepped up their attacks on a program they say makes little sense during a time of corporate belt-tightening.

H-1B visas rarely go to exceptional talent and often are used by “body shops” that provide contract labor to other companies, said Ira Mehlman, media director of the Federation for American Immigration Reform advocacy group. 

“H-1B visas are not being used as they were intended,” Mehlman said.

Controversy about the guest worker visas also has spilled over into the federal bank bailout. In early February, Senators Grassley and Bernie Sanders, I-Vermont, introduced legislation to bar banks that have received a taxpayer bailout from the U.S. Treasury Department or the Federal Reserve from hiring H-1B guest workers for a year.

Their amendment to the stimulus bill under discussion in Congress came in the wake of an Associated Press report finding that banks receiving the most federal aid had requested visas for thousands of foreign workers even as they laid off employees amid the economic collapse.

H-1B visas are one of a number of guest-worker visas that allow foreigners to work in the United States temporarily. Long backed by the U.S. tech industry as crucial to American competitiveness, H-1Bs let computer programmers, electronics engineers and other skilled workers stay in the country for up to six years. 

Except in limited cases, companies do not have to seek an American worker before hiring an H-1B.

In 2007, Grassley introduced legislation to make all employers applying for an H-1B visa pledge that they have made a good-faith effort to hire American workers first and that the H-1B visa holder will not displace an American worker. Grassley’s recent letter to Microsoft chief executive Steve Ballmer continued in that America-first vein.

He wrote it in the wake of the Redmond, Washington-based firm’s disclosure on January 22 that it would cut as many as 5,000 jobs in the next 18 months, including 1,400 jobs that day. Microsoft has been among the most vocal advocates for additional H-1B visas.

“My point is that during a layoff, companies should not be retaining H-1B or other work visa program employees over qualified American workers,” Grassley wrote in his letter. “Our immigration policy is not intended to harm the American workforce. I encourage Microsoft to ensure that Americans are given priority in job retention.”

In late January, a Microsoft spokeswoman said the company was in the process of responding to Grassley. Microsoft, which had 95,828 employees worldwide as of December, also issued a statement about its layoff process: “We made the difficult decisions on which jobs would be eliminated based on a detailed assessment of our current and future business opportunities. The initial reductions we announced affect employees in a number of business units, and a significant number of the affected employees are foreign citizens working in this country on a visa.”

Microsoft’s statement also noted that a pink slip for a guest worker can be traumatic.

“We recognize the human impact that our workforce reduction has on every affected worker and their families. For many of the employees here on a visa, being laid off means that they have to leave the country on very short notice, in many cases uprooting families and children,” the company said.

Microsoft was among the top 10 firms getting approvals for H-1B visas in the year ended September 30, 2007, according to research by technology industry publication Information Week. The top 10 was made up largely of India-based firms that provide outsourcing services, including Infosys Technologies, Wipro and Satyam Computer Services.

Asked if it intends to cut any jobs in the U.S. in the coming year, Infosys said in a statement that it had no such plans “apart from any reductions due to restructuring of units or performance-related terminations.” The company also said it disagreed with Grassley’s call for axing visa holders first.

“In a globalized world, corporate decisions should be based on economic realities rather than on political considerations,” Infosys said in its statement. “The U.S. has succeeded in the past due to its openness and free trade both in products and services. Any changes which could bring artificial restrictions on free movement of goods and people will be a huge setback to the globalization process.”

Semiconductor giant Intel also ranked in Information Week’s top 10 list of visa approvals, while technology firms Accenture, IBM and Oracle made the top 100.

Intel and Accenture did not respond to requests for comment. Oracle declined to comment for this story.

IBM spokesman Clint Roswell declined to comment on Grassley’s call for prioritizing U.S. workers.

In a twist on immigration work matters, IBM recently began offering U.S. employees who have lost their job the option of working for IBM in a less-developed country, such as South Africa, India and China. Roswell said the offer includes help with visa matters and moving costs. So far, no IBM workers have taken the company up on the offer, Roswell said.

“It’s not for everyone,” he said.

It’s not clear whether a U.S. employer could legally follow Grassley’s advice and trim its foreign guest workers ahead of qualified American citizens and permanent residents. Cletus Weber, an immigration attorney based in Mercer Island, Washington, says he believes that arbitrarily laying off lawfully employed foreign workers first could subject a firm to potential legal liability under federal anti-discrimination laws.

Title VII of the Civil Rights Act bans employment discrimination based on national origin. Asked whether Grassley’s call for prioritizing qualified American workers during a layoff would violate that law, a spokesman for the U.S. Equal Employment Opportunity Commission—which enforces civil rights law in the workplace—declined to comment.

Commission spokesman David Grinberg said in a statement that his agency looks at charges filed with it on a case-by-case basis.

But H-1B visa holders have rights, Grinberg indicated. “EEOC-enforced laws protect all individuals in the workplace,” he said, “regardless of immigration status.”