Visa Restrictions for TARP/TALF Recipients

Originally published March 31, 2009

Keywords: TARP, TALF, H-1B visas, temporary employees, reduced H-1B filings, American Recovery and Reinvestment Act, Employ American Workers Act, US Citizenship and Immigration Services, USCIS

Immigration attorneys are typically in overdrive during the month of March, preparing new applications for H-1B (professional) visas for temporary employees.  For the last several years, the annual statutory quota of 85,000 petitions has been exceeded immediately upon the opening of the filing period on April 1, resulting in a lottery to determine who gets the coveted visas.

While the economic slowdown has dramatically reduced the anticipated number of H-1B filings this year, it is not the only new obstacle to hiring H-1B workers.  Buried in the recently enacted federal stimulus bill, the American Recovery and Reinvestment Act, is the "Employ American Workers Act," a provision that makes it very difficult for employers that receive certain funding to petition for any H-1B workers. 

Under the normal rules, an employer can hire a temporary H-1B worker if the position requires a person with at least a bachelor's degree in a specific field, the prospective employee is qualified for the position, the employer will pay at least the prevailing wage for the job, and the employee's working conditions will be the same as a similarly employed US worker.  The company must make attestations to the US Department of Labor, and then file a petition with US Citizenship and Immigration Services (USCIS), the agency in the US Department of Homeland Security that is responsible for adjudicating H-1B petitions.  Companies must pay government application fees of up to $3,300, exclusive of legal fees, to obtain the services of the H-1B worker for an initial period of three years. 

Companies that have a high percentage (usually 15 percent) of H-1B employees — so-called "H-1B dependent employers" — have to jump through additional hoops before hiring an H-1B worker.  The Employ American Workers Act applies the rules for H-1B dependent employers to certain employers who wouldn't typically have to follow those rules.  Who precisely is covered by this provision isn't exactly clear.  The Employ American Workers Act clearly applies the H-1B dependent employer rules to companies that receive money under the Troubled Asset Relief Program (TARP).  But it also applies to companies that receive funding under Section 13 of the Federal Reserve Act, the provision that authorizes the Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF).  TARP recipients are well-known.  The TALF, which is authorized to lend $200 billion to support the issuance of securities collateralized by consumer and small business loans, extended its first loans within the last week. 

While TALF transactions are at an early stage, and aren't required to be public deals, they are likely to involve a typical — albeit somewhat complicated — structure.  The investor, often a special purpose entity created by a money manager or hedge fund, will borrow TALF funds from the Fed with the assistance of a primary dealer, typically an investment bank.  The investor will use those funds to acquire securities offered by an issuer of the asset-backed securities, which is often a trust.  The funds will flow to the owners of the trust, and then, further up the chain, to the entity that is making the consumer or small business loans that the TALF is intended to facilitate.

So who is, in the words of the Employing American Workers Act, the "recipient of funding" under TALF that is subject to the restrictions on hiring H-1B workers?  The most likely candidate may be the special purpose entity that borrows the funds from the Fed; however, that entity has no need for H-1B workers because it likely will have no employees.  Neither does the trust that issues the securities.  The investor that owns the special purpose entity has employees, but it is not the legal entity that is receiving any TALF money.  The investment bank has employees, but it is merely facilitating the transaction.  The entity making the consumer and business loans has employees, but there may be a several entities between it and the issuer of the securities, perhaps too many to justify considering it a recipient of TALF funds.

USCIS has offered little clarity thus far.  Its revised H-1B application form simply asks employers whether they have "received TARP funding," without mentioning TALF at all.  The form's instructions also say that the provisions apply to "U.S. employers who received funding under the Troubled Assets Relief Program."  The instructions go on to say, more accurately, that "TARP funding refers to receipt of funds described in the Employ American Workers Act."  Yet they don't mention that that act applies to more than just TARP funding.  Never mind that the immigration lawyers who prepare H-1B petitions are not well-versed in the nuances of Fed financing.

More specific guidance finally came from the Federal Reserve Board on March 31, 2009. The Fed stated that only the entity that directly borrows from a Federal Reserve Bank is a "recipient of funding." If the borrower is a special purpose entity, then any entity that owns or controls 25 percent or more of the equity of the special purpose entity is also a "recipient." The guidance also describes who is a "recipient of funding" under various credit facilities operated by the Federal Reserve. The guidance can be found at http://www.federalreserve.gov/monetarypolicy/files/eawafaq.pdf.

So what are the restrictions on H-1B dependent employers?  An employer that is covered by the Employ American Workers Act provision would need to attest (and document) that it has taken good faith steps to recruit US workers for the job and has offered the job to any equally or better qualified US worker who applied.  Normal H-1B rules do not require any recruitment.  Recruitment must take place both internal and external to the company, and must reflect industry standards.  US Department of Labor rules specify acceptable external recruitment methods. 

The company would also need to attest (and be prepared to document) that it has not laid off, and will not lay off, any US workers in an essentially equivalent job in the same geographic area in the 90 days before or after the H-1B petition for the foreign worker is filed.   Finally, if the H-1B worker is to be placed with another company or work off-site at another company, the petitioning employer must attest (and document) that the company for or at which the H-1B employee will work has not laid off, and will not lay off, any US workers in an essentially equivalent job in the same geographic area in the 90 days before or after the H-1B petition for the foreign worker is filed. 

While the normal H-1B dependent employer need not take these additional steps for an employee whose salary exceed $60,000, or who has a relevant master's degree, a covered employer under the Employ American Workers Act is subject to the additional steps for all H-1B employees regardless of salary or education level.

While the additional steps required of H-1B dependent employers are not impossible to meet, they represent significant obstacles to hiring an H-1B worker—in terms of additional time, expense and scrutiny.  And even if those obstacles can be overcome, at the end of the day the employer may simply not be able to make the required attestations.

Why would any employer want to go through the H-1B process, even under the normal rules?  Well, there are a lot of highly skilled foreign workers in the United States, particularly in technology fields that support business and which have experienced shortages for many years. So many businesses are hungry for the talents these foreign workers bring.  The employees, on the other hand, have been educated in the United States and want to stay in the country permanently. The H-1B visa is a bridge to permanent status, a process that due to separate quotas can take a half dozen or more years itself. 

Given the level of controversy over this issue, subject employers that file H-1B petitions should ensure that their petitions and records are very well documented.  Potential TALF recipients (you know who you are) who are considering hiring an H-1B worker may want to pull the trigger before closing the TALF transaction. 

While hiring H-1B workers may not be in the cards for most employers today, the restrictions of the Employ American Workers Act apply until February 2011, a time when everyone hopes economic recovery will be well underway. If the H-1B restrictions are broadly applied to TALF recipients, and the recovery comes, then the very companies who helped bring it about may not be able to hire the talent needed to take advantage of it.

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