United States: Impact of US Senate Immigration Bill on Outsourcing

Last Updated: July 31 2013
Article by Paul J.N. Roy

Keywords: immigration bill, US Senate, citizenship, reforms, IT, outsourcing, H-1B, L-1


On the day the US Senate passed its comprehensive immigration-reform bill1 this June, undocumented immigrants watching the vote from the Senate gallery burst into applause and chanted "Yes we can!" They had good reason to cheer, given the bill's promise of a path to citizenship for millions of immigrants now living in the country illegally. But that promise is just one of several reforms the bill proposes, and affected groups are finding less to applaud in some of the others. In particular, much of the IT outsourcing industry faces significant disruptions if the bill's temporary-work-visa provisions become law. Outsourcing companies based in India —Wipro, Infosys, and TCS, to name a few of the largest such companies — constitute a major segment of the industry, and they rely heavily on Indian employees to fill both the managerial and technical ranks of their US labor forces. The bill would place a number of restrictions on the H-1B and L-1 skilled-worker visas that allow those employees to enter and remain in the country.

Just what the long-term effects of these restrictions might be is difficult to say. If all goes as the bill's proponents hope, the end result will be a rise in the number of US workers hired for the jobs now done by H-1B and L-1 employees. On the other hand, outsourcing companies might choose to move many of those jobs offshore and never bring them back. In either case, US businesses that rely on India-based outsourcing are in for a period of abrupt adjustment if the measures go through. For some of those businesses, responding to the likely changes may mean making adjustments now to their service-provider relationships. For others it may also mean working for legislative changes while time remains to do so. Either course of action, however, begins with a key first step: Understanding the new rules and just what they require.

What the Proposed Rules Aim to Change

The immigration bill (officially the Border Security, Economic Opportunity, and Immigration Modernization Act) devotes most of its nearly 1,200 pages to issues related to foreigners seeking to build a permanent life in the United States. One section, however — Title IV, subtitled "Reforms to Nonimmigrant Visa Programs" — deals entirely with people brought here to earn a temporary living. The language of that section singles out no particular country or industry, but its effects will land hardest on the India-based IT outsourcing industry.

In typical variants of that industry's business model, the majority of a company's employees work offshore while the US-based remainder, most of them here on three-year H-1B or fiveyear L-1 visas, work closer to the customer. This reliance on visa-holding workers has provoked two principal complaints from the US IT industry. The first is that it drives Indian outsourcing companies to acquire a disproportionate number of the H-1B visas available annually, making it difficult for top US technology producers (Google and Microsoft, for example) to draw on overseas labor pools to fill R&D and other higher-skilled positions. The second is that it puts both US outsourcing providers (such as IBM, Accenture, and HP) and US outsourcing workers at a competitive disadvantage against lower-cost temporary foreign workers and the firms that depend on them. The bill addresses the first complaint with an increase in the yearly cap on H-1B visas from 65,000 to as many as 180,000. It addresses the second with a series of restrictions on H-1B and L-1 visas that both decreases their availability to outsourcers and increases the costs of using them.

The restrictions could have a dramatic effect on Indian companies' profits. The National Association of Software and Services Companies (NASSCOM), an Indian IT trade group, has estimated that the new rules might cost India's outsourcers a quarter of their worldwide revenue. Others say the sector's profit margins could shrink by a full percentage point. In the months before the Senate passed the bill, India's ambassador to the United States went on record with his opposition to the visa provisions, and other Indian interests warned their passage into law might start a trade war.

That the provisions nonetheless came through the final vote undiluted suggests the strength of their support. The recent adoption of similarly targeted visa restrictions in Australia and Canada is further evidence of the political headwinds the Indian IT sector is up against. The US House of Representatives is expected to pass its own immigration legislation, and though that chamber's Republican leadership has warned that any House version will differ significantly from the Democratic-controlled Senate's on controversial issues like citizenship for the undocumented, nothing in the public commentary on the bill suggests restricting visas for outsourcers will be a point of serious disagreement. Even if House Republicans balk and pass no comprehensive immigration-reform bill this year, support for independent legislation on H-1B visas could persist and possibly bear fruit in the next session. If on the other hand a compromise bill does emerge, the new visa rules could become law as early as the first months of 2014.

What the Proposed Rules Specifically Require

The near-tripling of the annual cap on H-1B visas from 65,000 to a maximum of 180,000 may be the most eye-catching feature of the bill's nonimmigrant-visa provisions. But for outsourcing providers, it is the bill's restrictions on using those visas that will have the greatest impact. Four measures in particular are likely to cause significant near-term disruption to the operations of India-based outsourcers, while additional restrictions may aggravate their impact:


If 15 percent or more of a company's workers in the United States hold H-1B visas, the bill defines the company as "H-1B dependent" and prohibits it from "plac[ing], outsourc[ing], leas[ing], or otherwise contract[ing] for the services or placement" of an H-1B visa holder with another employer. The bill refers to such arrangements, somewhat idiosyncratically, as "outplacement," and it prohibits them on nearly the same terms for workers holding L-1 visas. What these provisions appear to mean, at minimum, is that companies with a significant percentage of visa-holding employees — which at present includes all the largest Indian outsourcing companies — will no longer be able to send those employees to work in their customers' offices. This onsite work accounts for roughly half of Indian outsourcing's revenues in the United States. And though the companies would still be able to have visa-holding employees deliver services out of their own US sites, the bill's language leaves unclear whether under certain circumstances even offsite arrangements such as these might count as outplacement. Also unclear is whether the restrictions would apply to existing placements or only to those undertaken after the bill's enactment. Under any plausible interpretation, however, Indian outsourcers would have to scramble to find scarce US replacements for outplaced foreign workers, and services in the meantime could suffer delays and interruptions.


As of 2015, the bill would cap the combined number of H-1B and L-1 employees at 75 percent of a company's US workforce. In 2016, the cap would decrease to 65 percent, and from 2017 on, the maximum would be 50 percent. For companies with high percentages of nonimmigrant-visa-holding employees, which again means most of the top Indian outsourcers, the immediate difficulty will, again, be to find enough US replacements to keep their stateside staff numbers and service quality at existing levels.


Under a new three-level wage system for H-1B employees, H-1B-dependent companies would be required to pay H-1B visa holders at the second level, or 100 percent of average prevailing wages in the worker's job category as determined by the Department of Labor. This rule would effectively raise the cost of H-1B labor for Indian outsourcers by an estimated 5 percent to 15 percent. Companies might absorb the extra costs or, again, pass them on to customers, but either way, those costs will further erode the advantages of relying on a nonimmigrant-visa-holding workforce.


For companies employing H1-B and L-1 workers at a combined rate of 30 to 50 percent of their US workforce, the bill would create a filing fee of $5,000 for every new H-1B or L-1 visa application. If the rate is more than 50 percent (in the years before exceeding 50 percent is prohibited outright), the fee will be $10,000 per application. Given that visa applications by the top India-based outsourcers ranged from 2,000 to over 9,200 per employer, these fees could become an onerous expense. Companies may seek to pass that expense to their customers, but that might only trade a financial cost for a relational one, pushing US buyers away toward non-Indian competitors or otherwise fraying business ties.


Further burdens on the use of nonimmigrant visas include requirements that employers (i) actively recruit US workers prior to hiring an H- 1B worker,6 (ii) post the open position to a designated Department of Labor job-search website as part of their recruitment efforts,7 and (iii) advertise to their own employees a toll-free Department of Labor hotline for reporting noncompliance with any H-1B-related provisions.8 The bill requires of H-1B-dependent employers in particular that they (i) attest, when hiring an H-1B worker, that no US citizen employed by the hirer was or will be displaced in the period beginning 180 days before and ending 180 days after the hire (twice as long as the nondisplacement period required for all other employer types)9 and (ii) submit to annual Department of Labor compliance audits, with results made available to the public.10 None of these provisions is likely in itself to have the same direct impact on outsourcers as those discussed above. (Indeed, the nondisplacement pledge seems almost superfluous given the urgent need for US workers that will face H-1Bdependent companies if the bill is enacted.) But because the function of these softer measures generally is to bolster the transparency and thus the enforceability of the H1-B regulatory regime, they would no doubt act to amplify the bill's more substantive effects.

How the Proposed Rules Might Play Out Over Time

Should the immigration bill become law, the immediate consequence is bound to be disruption in the US outsourcing market. By some estimates the US economy will this year create twice as many jobs requiring computerscience degrees as US colleges will create computer-science graduates. Under those conditions, the odds are slim that Indian outsourcers hemmed in by the new regulations could hire enough US workers in a short-enough time to avoid at least some interruption in the course of business as usual. If the bill becomes law, those outsourcers and their customers will have to make some quick and possibly jarring course corrections. In the near term, the Indian providers will likely have to rebalance their workforces, doing offshore and remotely much of the work they now do stateside and onsite, and the customers will either learn to live with the adjustments or look elsewhere for their outsourcing services.

The livelier question is what happens after that. In the rosiest scenario, all goes as planned: The new restrictions on temporary work visas create new demand for trained US IT workers, and the labor market, helped along by growing investments in STEM education, rises to meet that demand. Responding to continued customer demand for onshore service, Indian outsourcers gradually replenish their US workforces with the rising crop of qualified US workers until eventually the outsourcing market returns to its former configuration — the only difference being that its workers now, in aggregate, are more American and better paid.

Other scenarios, however, are no less likely. In one, the shock of the new regime proves fatal to many if not most of the Indian providers' US operations: Adjustments are too few or too late, too many customers lose patience too soon, and one by one the visa-dependent outsourcers cede the US market to the competition. For those outsourcers that remain — US providers, and perhaps one or two of the biggest Indian firms — this thinning of the herd creates opportunities. For customers, however, it limits them. With fewer providers to choose from, businesses lose market power they might otherwise apply to keeping the higher costs of the re-Americanized workforce from being passed to them.

Yet, in a third scenario, the promised repatriation of IT outsourcing jobs never materializes. Instead, drawing on technological and legal innovation, Indian firms find ways to work around the newly legislated obstacles to retaining foreign workers. Faster, smarter telecommunications and other technological adaptations whittle away at the advantages of onshore service over offshore, eliminating customer demand for a replenished US workforce. Meanwhile, instead of forcing Indian outsourcers to withdraw their visa-holding workers from onsite projects, the prohibition on outplacement drives them to seek out its loopholes. Firms might, for example, draft new contracts granting the provider property rights in some portion of the customer's office space (thus turning an onsite placement into an offsite one). Or they could make strategic adjustments to the promised services, so as to put them just outside the legislation's definition of outplacement.

Whatever scenario prevails, however, there can be no shrugging off the consequences of the immigration bill for the outsourcing industry. Sooner or later, and in one form of legislation or another, the bill's work-visa provisions are likely to become law. In the shake-up that follows, customers and providers alike will find themselves at a disadvantage if they have not identified and planned for the consequences they are likeliest to face.

We wish to thank Mayer Brown summer associate Julian Dibbell for his work on this article.


1 S. 744, 113th Cong. (2013), available at http://www.govtrack.us/congress/bills/113/s744.

2 See S. 744 §§ 4211(d), 4211(e), 4301.

3 See S. 744 §§ 4213, 4304.

4 See S. 744 § 4211(a)(1)–(2).

5 See S. 744 §§ 4233(a), 4305(a).

6 S. 744 § 4211(c)(2).

7 Id.

8 S. 744 § 4221.

9 S. 744 § 4211(c)(1).

10 S. 744 § 4221.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2013. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.