The Department of Labor (DOL) pushed through a new rule that would make it considerably more expensive for employers to hire highly skilled foreign nationals. The Interim Final Rule (IFR), which impacts wage standards in the H-1B and other visa programs, was instituted October 8, 2020, without any preceding public notice and comment period to which new federal regulations are typically subject, and it is being challenged with several lawsuits, including Purdue University, et al., v. Eugene Scalia. In the Purdue case, the U.S. District Court for the District of Columbia had originally scheduled a hearing for November 13, 2020 to hear oral arguments concerning whether the DOL meets the “good cause” exception, which would permit the agency to skip the notice and comment precursor required under the Administrative Procedure Act. Many believe this cancellation occurred because the judge was satisfied with arguments made in the parties’ briefs, and it may be a harbinger of the rule being thrown out. Please check back for updates as they unfold.
IFR’s Impact on the Prevailing Wage Levels Used in H-1B, PERM, and Other Benefit Programs
The IFR instituted a substantial shift in how the Department of Labor calculates wages that must be paid to software developers, physicians, and other workers who are hired to work in the U.S through the H-1B, E-3, and PERM programs. U.S. employers must pay these workers the higher of the prevailing wage for a particular industry or the actual wage paid at a particular company to other employees with similar experience and qualifications. The IFR changed the formula for calculating prevailing wages for workers at Level 1 (entry-level) through Level 4 (fully competent). Previously, foreign national workers at Level 1 had to be paid at the 17th percentile of what workers in a particular geographic area earn for similar work; the IFR raised the minimum salary for the same entry-level foreign national workers to the 45th percentile. The other levels were increased as well: Level 2 went from the 34th to 62nd percentile; Level 3, from the 50th to 78th percentile; and Level 4, from the 67th to the 95th percentile.
In announcing the rule, which impacts all labor condition and prevailing wage applications filed after the date as well as those prevailing wages filed prior to Oct. 8 and that were still under review, the DOL acknowledged that the adjustments “represent a significant change” to wage levels had been in place for more than two decades. Further, the agency acknowledged, “many employers likely have longstanding practices” of paying foreign national workers based on the existing levels and that the sudden increases “may result in some employers modifying their use of the H-1B” program.
Opposition to the IFR
Critics of the IFR argue it would price many foreign workers out of the market while harming employers by making it impossible for them to secure talent for hard-to-fill roles. They take issue with the new percentile levels, which will result in employers having to pay wages that are on average 39 percent higher for Level 1 workers, 41 percent higher for Level 2, 43 percent higher for Level 3 and 45 percent higher for Level 4, according to an analysis by the National Foundation for American Policy (NFAP).
But what has created the most backlash has been that the IFR was shortsighted in that it effectually mandates a minimum salary of $208,000 ($100 an hour) for workers in a wide range of occupations, localities and levels of expertise. Under the new system, the DOL does not have enough data to calculate prevailing wages for many occupations and geographic areas. The required salary defaults to $208,000 in these situations, which occur in more than 18,000 combinations of occupations and geographic markets, regardless of experience level, according to the NFAP. Examples provided by NFAP include foreign software developers hired to work in the San Jose-Sunnyvale-Santa Clara area of California, who under the new rule must be paid at least $208,000. The NFAP compared this to a private wage survey from Willis Towers Watson, which showed entry-level software developers (systems) in that area earn $70,600. Similarly, the salary requirements for primary care physicians and dentists would default to $208,000, even for entry-level candidates, in many rural areas, pricing them out of the market in communities that struggle to fill these positions with U.S. professionals.
The Pending Case
The 17 plaintiffs in Purdue University, et al., v. Scalia include nine academic institutions and eight businesses, organizations and trade associations that operate in the healthcare, immigration and technology spaces. The plaintiffs claim the DOL “lacked ‘good cause’ for refusing to engage in notice-and-comment rulemaking procedures required under the APA, refusing to consider the impact to plaintiffs, and arbitrarily and irrationally changing the wages required for the employment of certain categories of foreign national workers.” The plaintiffs asked the court to enter a preliminary injunction 1.) enjoining the defendants from enforcing IFR and 2.) requiring the defendants to, within 10 business days of the date of the order, to reissue any prevailing wage determinations that have been issued pursuant to the IFR. The judge then issued an order that effectively resulted in the parties stipulating that the first claim would be treated as a motion for summary judgment. If the court rules that the DOL had good cause to institute the IFR without a notice and comment period, this will be stipulated in all litigation going forward. If, on the other hand, the court sides with the plaintiffs, the IFR will be set aside.
But while the latter situation would sideline the IFR for now, the DOL could then reissue it with the proper notice and comment period.
Founded in 1930, Barst Mukamal & Kleiner is one of the oldest immigration law firms in the United States. The firm’s immigration and business lawyers provide comprehensive immigration and business law services. Clients should contact their Barst attorney with any questions regarding the IFR. For general inquiries or to set up a consultation, please visit https://barstmukamal.wpengine.com/contact-us/.