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.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions